Earnest money

Earnest money is a deposit the buyer makes when their offer is accepted, signaling that they're serious about the purchase. The deposit sits in an escrow account held by a neutral third party (the title company, an attorney's trust account, or the broker's trust account, depending on the state) until closing or contract termination.

How it works: the deposit is typically 1–3% of the purchase price, with higher percentages common in competitive markets. On a $400,000 home, the deposit is usually $4,000 to $12,000. It's typically due 1–3 business days after offer acceptance, paid by wire or certified check. If the deal closes, the earnest money is applied toward the down payment or closing costs and is not an additional cost. If the deal terminates, the contract's contingency package determines whether the deposit returns to the buyer or goes to the seller.

Why it matters: the deposit is the buyer's signal of commitment and the seller's protection if the buyer walks away outside the contract's contingencies. In contested situations, earnest money can become a significant dollar amount at risk. The contingency windows and the contract's specific termination language determine whether the deposit returns when issues arise.

Common gotcha: wire-fraud schemes targeting earnest money have become common. Buyers should always confirm wire instructions by phone using a known number (never by responding to wire instructions received in email) before sending the deposit. The amounts at stake are large enough that fraudsters specifically target this stage of the transaction.