Colleen O'Hara Team

What is earnest money deposit?

Key points to understand about earnest money deposits:

Good Faith Gesture

By offering earnest money, the buyer is essentially telling the seller, "I am serious about buying your property, and I am willing to commit funds upfront to demonstrate my sincerity."

Applied Toward Purchase

In a successful real estate transaction, the earnest money deposit is often applied toward the down payment or closing costs at the time of closing.

Held in Escrow

The earnest money deposit is usually held in an escrow account, which is a neutral third-party account typically managed by the buyer's real estate agent or a title company. This ensures that the funds are not released to either party until certain conditions in the purchase contract are met.

Amount and Local Practices

The amount of earnest money can vary, but it is usually a percentage of the purchase price (commonly around 1-2%). Local real estate practices and market conditions may influence the amount requested by the seller.


The purchase contract may include contingencies, which are specific conditions that must be met for the sale to proceed. The earnest money deposit is often at risk if the buyer fails to meet these contingencies.

Refundable Under Conditions

The terms for the return of the earnest money are typically outlined in the purchase agreement. Common conditions for a refund may include the failure to secure financing, issues discovered during the home inspection, or the seller's inability to meet specific contractual obligations.

Protects Seller

The earnest money deposit offers some protection to the seller in the event that the buyer defaults on the contract without a valid reason. If the buyer doesn't fulfill the terms of the agreement, the seller may be entitled to keep all or a portion of the earnest money.