Earnest Money

Earnest money is a deposit made when submitting a home purchase offer, typically 1-3% of purchase price. Held in escrow and demonstrates serious buyer intent to seller.

Typical amounts:

• Competitive market: 2-3% ($8,000-12,000 on $400K home)
• Normal market: 1-2% ($4,000-8,000 on $400K home)
• New construction: Often $1,000-5,000 flat fee

What happens to earnest money:

• Offer accepted: Moves to escrow, applied to down payment and closing costs at closing
• Financing falls through (with contingency): Fully refunded
• You back out for covered reason (inspection issues): Refunded
• You back out without valid reason: Seller keeps deposit
• Deal closes: Applied to your closing costs/down payment

Earnest money deposit timeline:

1. Make offer with earnest money commitment ($10,000)
2. Offer accepted → deposit due within 3 days to escrow
3. Inspections, appraisal, financing contingencies play out
4. Closing day: $10,000 applied to closing costs, reducing cash needed

Protects both parties: Seller gets compensation if buyer walks without reason. Buyer gets deposit back if legitimate issues arise.