What Is Earnest Money and How Does It Work?
8 Min Read | Last updated: July 10, 2026
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Earnest money shows a seller you're serious about buying their home. Learn what it is, how it works, and how much you might need to offer.
At-A-Glance
- Earnest money is a good-faith deposit that a home buyer can submit to a seller to display a serious interest in a home, especially in competitive real estate markets.
- While earnest money deposit amounts vary, they typically range from 1%-3% of the sale price, but can reach up to 10%.1
- Real estate contingencies can help protect your earnest money deposit, especially if title, appraisal, mortgage, or inspection issues arise during the sale.
When making an offer on a home, taking steps to make your offer stand out could help your bid win. Earnest money is a tactic that some home buyers use to show how serious they are about buying a home. In some cases, an earnest money deposit could be a deciding factor in whether the homeowner accepts your offer.
Let’s unpack how this good-faith deposit works, how much it can be, and the other important factors to consider before submitting an earnest money deposit.
What Is Earnest Money?
An optional step to consider before buying a house is earnest money, also known as a good-faith deposit. Earnest money is money that a buyer deposits to demonstrate a serious intention to buy a home. This deposit can help foster trust between the potential buyer and seller, making a buyer’s offer more appealing.
While earnest money helps demonstrate the buyer’s commitment and preparation, it’s neither legally required nor necessary to secure a new home.
How Does Earnest Money Work?
Earnest money can either be a fixed amount or a percentage, typically 1%-3% of a home’s purchase price.2 But earnest deposits can rise or fall depending on supply and demand. In more competitive markets, earnest deposits can reach up to 10% of a home’s sale price.3
Working with a real estate agent could help you arrive at the most appropriate earnest money amount. For example, a buyer may give a larger or nonrefundable earnest deposit to make a more appealing offer. However, this strategy can carry risk since the buyer could end up forfeiting the money if they back out of the sale.
Earnest money is typically due after the seller accepts the buyer’s offer. Some ways to pay earnest money include cashier’s checks, personal checks, wire transfers, and money orders.4 A third-party escrow account usually holds your earnest deposit until closing transactions finalize, after which the deposit can sometimes go toward closing costs or the down payment.5
Earnest Money Contingencies
Real estate contingencies let buyers or sellers off the hook for any purchase contract responsibilities if certain conditions aren’t met. Earnest money contingencies usually specify situations where you could keep or lose your earnest money, helping protect everyone if certain problems pop up during the transaction. Depending on your contract’s contingencies, you might be able to get your earnest money refunded if you end up having to abandon the sale.
Here are some common examples of earnest money contingencies.5
- Appraisal contingency: A home appraisal helps determine the fair market value of a home, allowing buyers to understand a property’s worth. If your contract has an appraisal contingency, and the home appraises for less than the purchase price, you could walk away with your earnest money in hand.
- Inspection contingency: A home inspection contingency could provide an out if the home you intend to buy requires major repairs. For example, if the inspection uncovers serious problems with the home’s foundation or electrical system, an inspection contingency allows you to withdraw your offer and keep your earnest money.
- Title contingency: A title contingency gives you the right to run a title search and abandon the deal if there’s an issue attached to the title, like a lien or an easement. A lien is a legal claim that helps creditors collect a property as collateral if the original owner defaulted. An easement refers to a non-owner’s legal right to use the property for a limited, specific purpose. Neither is ideal for a buyer.
- Mortgage contingency: Also referred to as a financing contingency, this can protect your earnest money if you can’t get approved for your mortgage loan within the timeframe your purchase contract holds you to.
Ways to Protect Earnest Money
Here are some steps you can take to protect your earnest money during a real estate transaction.
- Avoid submitting directly to a seller or real estate brokerage: It’s safer to make your deposit with a legitimate escrow or title company rather than submit it directly to the seller or brokerage. That way, everyone receives protection if a problem occurs during the sale.
- Confirm that the correct party received the payment: It’s a good idea to confirm your earnest money’s receipt with the designated title or escrow company to verify the timely processing of your deposit.
- Opt for contingencies: Purchase contract contingencies could help protect your money during the sale process.
- Review your contract terms: You can check the terms in your purchase contract, paying special attention to deadlines.
Frequently Asked Questions
The purpose of earnest money is for a potential buyer to show the seller they are serious about purchasing a property. Putting down earnest money could help strengthen your offer, especially in competitive housing markets.
Not exactly. If everything goes well, the earnest money deposit can be applied directly to your down payment or other closing costs5, helping offset them.
Earnest money deposits could be refundable if either party breaks one or more of the purchase contract contingencies. For example, if the home inspection fails and your contract includes an inspection contingency, you’re typically entitled to a refund.
The Takeaway
Earnest money is a powerful way for home buyers to signal a serious commitment to a seller, especially in competitive markets. Before submitting your earnest money to an escrow account, making sure your purchase contract contains appraisal, mortgage, and inspection contingencies can help protect your deposit.
1,2,3 “What Is Earnest Money?,” Experian
4 “Understanding earnest money in real estate transactions,” Business Insider
5 “Earnest Money in Real Estate: Refunds, Returns and Regulations,” National Association of REALTORS
Theresa Stevens is a personal finance writer based in Boston, Massachusetts. Her work has been featured in Forbes Advisor, Bankrate, USA TODAY Blueprint and more.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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