Earnest money is a good-faith deposit that the buyer submits — usually within a few days of mutual acceptance — to demonstrate they're serious about completing the purchase. It's held in escrow, credited toward the purchase price at closing, and returned to the buyer if they exit under a valid contingency.
That's the textbook definition. The reality is more complicated. Earnest money disputes are one of the most common causes of real estate litigation, and they almost always trace back to something that wasn't clearly spelled out in the purchase agreement — a missing deadline, a vague escrow holder, or a contingency waived without the buyer understanding the consequences.
Here's what every agent should know about earnest money before their next deal.
How much earnest money is standard?
The basicsThere's no universal rule — earnest money amounts vary significantly by market, price point, and local convention. In most markets, 1–3% of the purchase price is typical. In competitive markets with heavy multiple-offer activity, buyers sometimes offer 5% or more to signal serious intent. In rural areas or slower markets, a flat $500–$2,000 deposit is common. As the buyer's agent, your job is to advise what's customary in your market and what amount makes the offer competitive without overexposing your client. As the listing agent, an unusually low earnest money deposit is worth noting — it may indicate a less-committed buyer or one who's hedging their risk.
Who holds it — and why it matters
Escrow basicsEarnest money is typically held in escrow by either the buyer's brokerage, the title company, or an escrow company — whoever is specified in the purchase agreement. This matters because if a dispute arises and the deal falls apart, the party holding the funds is the one who decides whether to release them — or waits for a signed mutual release or court order before doing so. Make sure the purchase agreement clearly identifies the escrow holder, their contact information, and the required delivery timeline for the deposit. If the contract says 'within 3 business days of acceptance' and the buyer sends the wire on day 5, that's a default — even if minor and easily cured.
When is earnest money refundable?
Critical to understandEarnest money is refundable when the buyer exits the contract under a valid contingency. If an inspection contingency is in place and the buyer terminates within the inspection period, they get their money back. Same for financing and appraisal contingencies — assuming the deadlines were met and the proper notice was given. Earnest money becomes non-refundable when the buyer defaults — typically meaning they terminate the contract without a valid contingency, miss a deadline that was already waived, or simply change their mind after the contingency period has passed. Agents should be crystal clear with buyers upfront: once the contingencies are removed, the earnest money is at risk.
Earnest money disputes: what actually happens
Where things get uglyWhen a deal falls apart and both sides want the earnest money, you have a dispute. The escrow holder — whether a brokerage or title company — typically cannot release the funds without either a signed mutual release from both parties or a court order. That means disputes can take months to resolve and often require mediation or small claims court. The most common trigger: the buyer terminates after contingencies have been removed, or the termination notice is delivered after a deadline has passed. Smart agents document everything — the dates contingencies were waived, when notices were sent, and how delivery was confirmed. A paper trail won't prevent a dispute, but it makes resolution much faster.
What the purchase agreement must say
Contract checklistTo avoid ambiguity, the purchase agreement should clearly state: (1) the exact dollar amount of earnest money, (2) the escrow holder's name and contact information, (3) the deadline for delivering the deposit, (4) whether the deposit is held in an interest-bearing account and who receives interest, (5) the conditions under which it's refundable, and (6) what happens if the deposit isn't received on time. Any blank field in this section is a red flag. A missing escrow holder means nobody knows where the money goes. A missing deadline means there's no enforceable timeline. These aren't technicalities — they're the terms that govern what happens to potentially thousands of dollars if the deal goes sideways.
The deposit deadline is a real deadline
New agents sometimes treat the earnest money delivery deadline as flexible — something that can slip a day or two without consequence. It can't. Failure to deliver the deposit on time is a breach of contract. It gives the seller grounds to issue a notice to perform, and if the buyer doesn't cure it quickly, grounds to cancel the contract and pursue the earnest money as liquidated damages.
Bank wires, certified checks, and online ACH transfers all take time. Remind your buyer of the deposit deadline immediately upon mutual acceptance — not the day before it's due. Wire fraud is also a real risk: always verify wiring instructions via a phone call to a known number before sending funds.
Your client needs to understand what's at stake
One of the most important conversations you can have with a buyer happens before they go under contract: explaining exactly when their earnest money becomes at risk. Most buyers assume they can get their deposit back anytime they change their mind. That's only true during the contingency period.
Once inspection is waived or removed, once the financing contingency deadline passes, the earnest money is on the line. A buyer who decides to walk away three weeks after removing contingencies because they found a different house they like better is likely forfeiting that deposit — and possibly exposing themselves to additional damages depending on state law.
Document this conversation. Not because you expect things to go wrong, but because memories get fuzzy when money is on the table.