Earnest money is a deposit a buyer makes after their offer is accepted to demonstrate their seriousness, or “earnestness,” about purchasing the property.
The amount typically varies from 1% to 5% of the purchase price, depending on the property, market, and terms of the offer.
On a $400,000 home:
1% = $4,000
3% = $12,000
5% = $20,000
The money is held in escrow, where a neutral party safeguards the funds until closing or another agreed-upon outcome.
At closing, your earnest money goes toward your down payment and/or closing costs.
So, earnest money isn’t an additional cost on top of buying the home. It’s money you’re putting into the transaction earlier.
How Much Earnest Money Should You Offer?
Typically, between 1% and 5% of the purchase price. But the exact amount of earnest money is micro-market specific.
That’s why I’m less interested in:
“What’s the minimum earnest money we can put down?”
And more interested in:
“What earnest money amount gives us an edge to win?”
If you’re competing for a home you really want, a stronger earnest-money deposit can give the seller greater confidence in your offer.
And it can strengthen our position without simply increasing the price you’re willing to pay for the home.
The goal isn’t to offer the most earnest money. It’s to use it intelligently.
Earnest Money Can Be Split Into Two Payments
Earnest money can also be distributed in two batches rather than all at once. This is more common with larger earnest-money deposits, particularly when a buyer is in the 4–5% range on a higher-priced property.
The first deposit is typically due within 2–3 days after the offer is accepted.
The second deposit can then be due after the attorney review period ends.
Together, those deposits make up the total earnest money agreed to in the contract.
How Do You Avoid Losing Your Earnest Money?
The biggest thing is following the contract and its deadlines.
During the attorney review period, your attorney has an opportunity to review the contract, propose permitted modifications, and protect your interests. If the contract is properly terminated within the attorney review provisions, your earnest money can be returned.
After attorney review, other protections may still apply depending on your contract, including financing, appraisal, inspection, or other contingencies.
The important part is that those protections have requirements and deadlines.
So, rather than thinking:
“If I put down more earnest money, I’m putting all of that money at risk.”
A better question is:
“What protections do I have, and what do I need to do to preserve them?”
That’s why your agent and real estate attorney need to be paying attention to the contract from day one.
We can use earnest money to strengthen an offer while still being deliberate about protecting it.
An Offer Is More Than a Price
When buyers hear there are multiple offers on a property, the natural reaction is:
“How much more do we need to offer?”
Net price is the most important term. But it’s not the only thing a seller is evaluating.
Closing date, including whether the seller needs a leaseback or rent-back after closing, financing, contingencies, earnest money, and other terms can all influence the strength of an offer.
That gives us more than one place to look for an advantage.
If I can make your offer stronger without unnecessarily increasing what you’re paying for the property, I want to find that opportunity.
Earnest money is one of those tools.
When you find the home you really want, the goal isn’t simply to submit an offer. It’s to use every reasonable lever available to put you in the strongest position to win it.
See what others miss. Make every move count.
Earnest Money FAQ
Is earnest money an extra cost?
No. At closing, your earnest money goes toward your down payment and/or closing costs.
Do I pay earnest money when I submit my offer?
No. The amount is established in the offer, but the first deposit is made after the seller accepts according to the terms of the contract.
Can earnest money be split into two payments?
Yes. Earnest money can be structured as an initial deposit shortly after acceptance and a second deposit after the attorney review period ends.
What if my earnest money is more than I need for my down payment and closing costs?
This can happen, especially if a buyer negotiated seller credits that reduce the amount of cash needed at closing.
Earnest money is the buyer’s money, as long as all contractual protocols, requirements, and deadlines are adhered to.
If the buyer’s deposits and applicable credits leave more funds than are needed for the required cash to close, eligible excess funds may be returned to the buyer at closing, subject to the loan program and lender requirements.
Seller credits themselves generally can’t simply be converted into cash back to the buyer or used toward the down payment. The lender and attorney will determine exactly how the credits, earnest money, and other funds are reflected at closing.
Can offering more earnest money help my offer?
Yes. In a competitive situation, a stronger earnest-money deposit can help make an offer more attractive without simply increasing the purchase price.
Can I lose my earnest money?
Potentially. It depends on the contract, why the transaction ends, and whether the applicable requirements and deadlines were followed.
