Earnest Money Explained
What is earnest money, and what happens to it after your offer is accepted?
When you make an offer to purchase real estate, the contract may require you to provide earnest money after the offer is accepted. Earnest money is a deposit made in connection with the purchase contract and demonstrates your commitment to the transaction.
It is not an additional fee or payment on top of the purchase price. If the transaction closes, your earnest money is generally credited toward the amount you owe at closing.
How Much Earnest Money Will I Need?
There is no single amount of earnest money required for every real estate transaction.
The amount is typically negotiated as part of your offer and can vary based on the purchase price, property, market conditions, and overall terms of the offer.
When we're preparing your offer, we'll discuss an appropriate earnest money amount as part of the overall offer strategy.
When Is Earnest Money Due?
Your purchase contract will specify how much earnest money is required and when it must be delivered.
Some transactions may also include an initial earnest money deposit followed by an additional deposit at a later point in the transaction.
These deadlines matter. Once you're under contract, AED Realty will help you keep track of when your earnest money is due and provide instructions for delivering it to the appropriate party.
Who Holds the Earnest Money?
Earnest money is generally held in an escrow account by the brokerage or another party designated in the purchase contract.
The money is yours, and held for the transaction—it does not simply become the seller's money when you deposit it.
Always follow verified instructions for delivering earnest money and never send money based solely on wiring instructions received unexpectedly by email or text. Wire fraud is a serious risk in real estate transactions.
What Happens to My Earnest Money at Closing?
If the purchase proceeds to closing, your earnest money is generally applied as a credit toward the funds you need to complete the purchase.
For example, if you deposited $5,000 in earnest money, that $5,000 doesn't disappear. It will generally appear as a credit on your closing statement and reduce the remaining amount you need to bring to closing.
Earnest money is separate from your mortgage down payment, but it can ultimately become part of the funds credited toward your purchase at closing.
Can I Get My Earnest Money Back If the Deal Falls Apart?
Sometimes—but not automatically.
Your rights to the earnest money depend on the purchase contract and the circumstances surrounding the termination.
Real estate contracts can contain contingencies or other provisions addressing issues such as attorney review, inspection, financing, appraisal, or the sale of another property. Depending on the contract and circumstances, a buyer may have the right to terminate the transaction and seek the return of earnest money.
However, simply changing your mind does not necessarily mean you're entitled to receive your earnest money back.
This is one reason your real estate attorney plays an important role during the transaction. Questions about your legal right to terminate a contract or receive earnest money back should be discussed with your attorney.
What Happens If There's a Dispute Over the Earnest Money?
If the buyer and seller disagree about who is entitled to the earnest money, the party holding the funds generally cannot simply decide who should receive them.
The funds may remain in escrow while the dispute is resolved according to the contract, applicable law, and the escrow holder's obligations.
If a dispute occurs, your attorney can advise you regarding your rights and the appropriate next steps.
Is Earnest Money the Same as a Down Payment?
No. They're related to the purchase, but they're not the same thing.
Your earnest money is a deposit made after entering into the purchase contract.
Your down payment is the portion of the purchase price you're paying rather than financing through your mortgage.
At closing, the earnest money you've already deposited is generally credited toward the total funds required from you.
Protecting Your Earnest Money
Before sending any earnest money:
Confirm exactly how much is due and the deadline
Follow the payment instructions provided for your transaction
Verify any wire instructions independently before sending funds
Keep confirmation of your payment
Contact AED Realty if you receive unexpected or conflicting payment instructions
Never assume that new banking or wire instructions received by email are legitimate. If something changes, verify it using a trusted phone number before sending money.
We'll Help You Keep Track
Once your offer is accepted, there can be a lot happening at once—earnest money, attorney review, inspection, financing, appraisal, and other deadlines.
AED Realty helps you understand what's coming next, coordinates with the professionals involved in your transaction, and keeps important dates from getting lost in the process.
Want to Understand What Comes Next?
See the entire process from offer to closing.
This information is provided for general educational purposes and is not intended as legal, tax, or lending advice. Contract terms and individual circumstances vary. Consult your attorney or other appropriate licensed professional regarding your specific transaction.