Earnest Money Deposits: Putting Skin in the Game on an Offer

Earnest money is a good-faith deposit a buyer makes after the seller accepts an offer. It tells the seller you are serious enough to risk your own cash while the deal heads to closing. In many markets it runs about 1% to 3% of the price, though local custom varies.

Where it sits

The seller does not hold it. A neutral party does, usually a title company, escrow agent, closing attorney or brokerage. At closing it is credited toward your purchase funds.

When you get it back

The purchase contract controls. You can typically recover it if you cancel inside a contingency period, such as inspection, appraisal or financing, or if the seller can't deliver clean title or walks away. Once contingencies expire, backing out without a contract reason usually means forfeiting it. If the two sides disagree, the escrow holder generally won't release the money without both signatures or a court order.

A simple example

Example, round numbers. You offer $250,000 on a flip with a $5,000 deposit and a 10-day inspection period. On day 7 your contractor finds foundation damage. You cancel in writing and the $5,000 comes back. If you cancel on day 15 for the same reason, the seller may keep it.

In investor deals

Investors often shorten or waive contingencies to compete, put up larger deposits, or buy at auction where deposits are non-refundable. More risk, stronger offer.

Why it matters to you

Your deposit is at risk the moment contingencies end. Line up inspections and financing early, and track every contract deadline.

If you are financing the purchase, RSC Private Lending issues term sheets in 24 hours and can close in as few as 10 days. Send us your scenario. Subject to underwriting.