Earnest Money Deposit

What is an earnest money deposit?

Updated April 1, 2022

Earnest money is a deposit made by the prospective buyer to the seller that “holds” the property until the deal is complete. In exchange, the seller takes the property off the market.

Earnest money, which is generally 1% to 10% of the asking price, gives the buyer time to get the house appraised and inspected and to get a loan secured.

The money, either a personal check, cashier’s check or wire transfer, is held in escrow until the deal is completed. It may be applied to the buyer’s down payment and closing costs or may be refunded at closing.

Related Links

Inspection contingency

Mortgage contingency


Depending upon the contingencies written into the sales contract, the earnest money may or may not be refundable.

Typically, contracts allow for a refunding of the money when

  • The inspection of the home uncovers a major flaw in the property.
  • The property appraises for far less than the seller’s asking price, and the buyer cannot find a bank to issue a mortgage in such circumstances and the seller won’t lower the price.
  • The buyer is unable to sell a current home.
  • The seller terminates the sale.