What is earnest money?

Find out more about what earnest money is.

Earnest money (a.k.a good faith deposits) are funds deposited by the prospective buyer to show the buyer's seriousness about purchasing a home. It's common for this amount to be at least 1% of the purchase price amount, rounded up to the nearest $500 or $1,000 amount. However the deposit amount could be more, less or the buyer may not offer any earnest money at all, depending on their discretion.

Earnest money is delivered to an escrow account (either one managed by a broker or an account managed by a Title Company) upon signing the purchase agreement or the sales contract. While the earnest money can be deposited at any time before a sales contract is accepted on a home, it must be deposited to the escrow agent indicated & within the time frame specified on the sales contract.

The sales contract indicates what will happen to earnest money in many common cases. In the event that both parties fulfill their agreements in the contract & closing occurs successfully, the buyer should receive their deposit as a debit toward their closing associated costs at closing.

However, there are instances where the seller may receive part, or all of the earnest money that the buyer deposited. 

If there are any disagreements about where earnest money should be deposited in the event that one or both parties do not fulfill an agreement within the contract, or if the deal does not successfully close, both parties should speak with the broker overseeing the contract.