How does earnest money work?
Earnest money is a small amount of money that you put down on a home to show the seller that you’re serious about buying it. It’s a critical part of the homebuying process since getting your earnest money right can increase your chances of having an offer accepted.
Earnest money is typically a line item included in your offer. It tells the seller, “If you accept our offer, we’ll put money in escrow right now to show how committed we are to buying.”
You’re essentially giving a third party to hold, for the seller, some good-faith money to show that your offer is legitimate,” Mark Milam, the president of Highland Mortgage in Atlanta, told ConsumerAffairs.
Once the seller accepts your offer, you’ll typically have three days to write a check for your earnest money. But as Milam mentioned, your earnest money doesn’t go to the seller just yet. Instead, it sits in an escrow account until closing, and the seller knows it’s there. Once everything is accepted, your earnest money will be credited toward your down payment.
Earnest money typically includes contingencies which are included in the initial offer. If the appraisal comes in lower than the home’s sale price or the inspection reveals major flaws, you may be entitled to get your earnest money back and back out of the deal.
However, if you back out of the sale voluntarily — or for a reason not listed in your earnest money contingencies – the seller is entitled to keep your earnest money.
Lastly, it’s important to point out that earnest money isn’t a “bribe,” but rather a deposit. “Earnest money is fully applicable to your funds due at closing — it’s not an additional cost.” explained Milam. “But you do forfeit it if you back out.”
» MORE: Homebuying checklist
Common earnest money contingencies
Home offers typically come with strings attached. These are known as contingencies, and they allow you, the buyer, to back out of the deal and keep your earnest money if things don’t go as planned during due diligence.
Here are some of the most common contingencies you’ll see in a home offer that may allow you to back out with your earnest money.
- Appraisal contingency: If a seller wants $700,000 but the home appraisal comes in at $500,000, your mortgage lender typically won’t loan you more than $500,000 since your loan is secured by the value of the home. That means to complete the sale you’ll either have to negotiate a lower price or come up with $200,000 cash. That’s why many buyers include an appraisal contingency, which gives a back door out of this difficult scenario.
- Home inspection contingency: During due diligence you’ll typically order a home inspection to check on things like the condition of the house and the health of the HVAC system. If the inspector finds issues, you can ask the seller to address them as a condition of the sale. If they refuse, the home inspection contingency allows you to back out with your earnest money.
- Mortgage contingency: Also known as a financing contingency, a mortgage contingency allows you to walk away with your earnest money if you can’t secure a mortgage or other form of financing in time to close the deal.
- Title contingency: Similar to when you buy a car, you’ll want to ensure your new home has a clean title before finalizing the sale. If you find a lien, a dispute or some other messy legal situation, a title contingency allows you to back out.
- Home sale contingency: Sometimes you need to sell your first home before you can finance your new one. A home sale contingency allows you to back out if your first home doesn’t sell in time, although it’s not your only option for completing a new home purchase while your first home is still on the market. See also bridge loans and second mortgages.
How much earnest money is enough?
Historically, the standard for earnest money has been 1% of the home’s total sale price. So if you’re placing an offer on a $500,000 home, your earnest money would be $5,000.
“If you’re under 1%, your offer probably won’t be taken seriously,” Joseph Elkourie, associate broker and principal at The Axis Group in Atlanta, told Consumer Affairs.
That being said, in an increasingly competitive housing market with consistently low inventory, the standard for earnest money has risen. “If you’re in a competitive situation with multiple offers, you typically want to show more good faith with 2% or more,” he said.
Milam agrees. “Folks who really want to make a splash do 2%. That’s $14K on a $700K home,” he advised.
Comparison of earnest money amounts
Let’s look at how your earnest money payment changes based on the price of the home and the percentage you want to offer.
| Home price | Percentage | Recommended Amount |
|---|---|---|
| $300,000 | 1% | $4,000 |
| $300,000 | 2% | $8,000 |
| $300,000 | 5% | $15,000 |
| $600,000 | 1% | $6,000 |
| $600,000 | 2% | $12,000 |
| $600,000 | 5% | $30,000 |
Examples of earnest money
In the best-case scenario, this process goes well. You find the right home and make an offer with few contingencies, and the seller accepts your offer. You put down your earnest money, and the seller cashes the check and places the money in escrow. Inspection and appraisal go well so the sale proceeds, with your earnest money applied to your down payment.
Ideally, this would happen for every buyer. However, there are scenarios where things don’t go as planned:
- Your loan falls through: A mortgage lender may deny your mortgage during closing for a variety of reasons, including a drop in credit or a major change in your employment status. If, for example, you took out a large car loan during due diligence, your lender may deny your mortgage. Without financing the sale falls through, and without a mortgage/financing contingency, the seller keeps your earnest money.
- The appraisal comes in $50,000 lower: Let’s say you agreed to a sale price of $300,000 but the appraisal comes in at $250,000. The bank won’t loan you more than $250,000 minus your down payment, and the seller won’t come down in price. Since you included an appraisal contingency, you can walk away with your $6,000 earnest money.
- There’s an issue with the title: During due diligence, your attorney conducts a title search and discovers that the former homeowner passed away and there’s currently a legal dispute among her heirs. This raises questions about who truly owns the home and can legally sell it to you. Since you have a title contingency in place, you choose to stay out of it and walk away with your earnest money.
Should you find yourself in any of these situations, your next best step might be to consult with your real estate agent. They may be able to help you find alternative methods of preserving the deal, or if it doesn’t work out, start the search for another property.
How to protect your earnest money deposit
There are many ways to protect your earnest money when putting in an offer on a house. As mentioned, the most straightforward way is to include carefully worded contingencies in your initial offer–but here are a few more tips for keeping your earnest money safe and ensuring it goes right back into your pocket if one of your agreed-upon contingencies occurs.
- Work with reputable third parties: Do not give cash or a check directly to the seller. Your earnest money should be held in an escrow account or with the title company until you close on your house. Your real estate agent should explain how to keep your earnest money safe.
- Get everything in writing: Always ask for receipts, keep as much communication to email as possible and don’t authorize a release until the transaction closes.
- Adhere to the timeline: Once your offer is accepted, the clock starts ticking. You have a set amount of time to perform an inspection, negotiate down any costs and lock in your loan. If you don’t meet your deadlines, you risk losing your earnest money.
FAQ
Can you negotiate earnest money?
Yes, earnest money can be negotiated during the offer and counteroffer stage before the seller accepts your offer. A seller may negotiate a higher earnest amount to gauge your level of commitment.
Do you need earnest money to refinance?
No, mortgage lenders do not require good-faith deposits, but you will still owe closing costs.
Is earnest money the same as a down payment?
No, a down payment is due at closing. Earnest money is typically due within three days of your offer being accepted and shows the seller that you’re committed to the sale. Your earnest money then applies to your down payment at closing.
Will I get my earnest money back?
No, earnest money is typically applied toward your down payment at closing. Also, if you back out of a sale voluntarily, the seller will usually keep your earnest money. However, if you back out due to a reason listed in your contingencies (low appraisal, title issues) you’ll get your earnest money back.
What’s the difference between earnest money and option money?
Option money is a $500 to $2,000 “gift” to the seller that they receive immediately upon accepting your offer. Unlike earnest money, option money does not roll into your down payment and never has contingencies attached.
Bottom line
Earnest money shows the seller you are serious about purchasing and provides the seller with some assurance that the transaction will move forward. In a competitive real estate market, earnest money can be a deciding factor for a seller considering multiple offers.
If you’re close to submitting an offer on a home, make sure you have a conversation with your real estate agent about how much earnest money to put down — and discuss contingencies so you don’t lose the money if the transaction falls through.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- realtor.com, “How Much Earnest Money Is Normal? Earnest Money Deposit Mistakes.” Accessed Jan. 2, 2026.
