What Is Earnest Money?

The short definition

Earnest money is a deposit you make when submitting an offer on a home, showing the seller you're serious about the purchase. It's held in escrow, not paid directly to the seller.

How much it typically is

Earnest money is often 1–3% of the purchase price, though this varies by market and negotiation.

What happens to it

If the sale closes, earnest money is typically applied toward your down payment or closing costs. If the deal falls through for a reason covered by an agreed-upon contingency, it's usually returned. If a buyer backs out for a reason not covered by a contingency, the seller may be entitled to keep it.

Related terms

Contingency · Escrow