What is earnest money and how much should you offer?

Earnest money is one of the most misunderstood parts of making an offer. Here's what it is, how much to offer, and when it's at risk.

What earnest money is

Earnest money is a deposit you make shortly after your offer is accepted, showing the seller you're serious. It's held in escrow by a neutral third party, not the seller directly, and is later applied toward your down payment and closing costs at closing.

How much should you offer?

There's no fixed rule, but earnest money is typically a percentage of the purchase price. A higher deposit can make your offer more competitive in a multiple-offer situation because it signals commitment, but you should never offer more than you're comfortable putting at risk.

When you get it back

If you back out of the deal for a reason covered by a contingency in your contract (financing falls through, the inspection reveals a major issue, the appraisal comes in low), you're typically entitled to a full refund.

When you can lose it

If you back out for a reason not covered by your contract, such as changing your mind, the seller may be entitled to keep the earnest money as compensation for taking their home off the market.

Why contingencies matter more than the deposit amount

The contingencies written into your offer protect you more than the size of the deposit does. A financing contingency, inspection contingency, and appraisal contingency each give you a specific, documented way to cancel and keep your deposit if something goes wrong.

The takeaway

Earnest money is a real financial commitment, and it stays protected as long as your offer includes the right contingencies for your situation. This is exactly the kind of detail a good agent goes through with you line by line before you sign anything.

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