If you’re diving into the home buying process for the first time, you’re probably hearing a lot of new terms—”pre-approval,” “escrow,” “contingencies”—but one that often raises eyebrows is earnest money. What is it? Do you really need to fork it over? And how do you avoid losing it?
Let’s break it down..
What Is Earnest Money?
Think of earnest money as a “good faith” deposit. When you find the home and make an offer, you include a small upfront payment to show the seller you’re serious—not just casually browsing Zillow with your morning coffee.
This deposit typically ranges from 1% to 3% of the purchase price, depending on the market and local norms. So on a $400,000 house, that could be $4,000–$12,000.
Once the seller accepts your offer, your earnest money is held in an escrow account until closing. It eventually gets applied toward your down payment or closing costs—it’s not an extra fee.
Why It Matters
To put it bluntly: earnest money tells the seller you’re not going to ghost them. Selling a home takes time, energy, and emotions. Earnest money helps the seller feel secure pulling their home off the market for you.
It also gives buyers skin in the game. You’re less likely to back out on a whim when real money is involved.
How to Protect Your Earnest Money
The idea of putting down thousands of dollars before you even close on the home can be nerve-wracking. Here’s how to protect your deposit:
1. Use Contingencies Wisely
Include inspection, financing, and appraisal contingencies in your offer. If the home inspection reveals major issues or your financing falls through, these clauses allow you to back out and get your money back.
2. Meet Your Deadlines
Real estate transactions are full of deadlines. Miss one—like your inspection window or deposit date—and you could forfeit your earnest money. Stay on top of your timeline, or have a great agent who keeps you organized.
3. Get It in Writing
Everything about your earnest money—how much, when it’s due, what conditions allow for a refund—should be outlined in your purchase agreement. Don’t rely on verbal assurances.
4. Only Pay Through Official Channels
Never give earnest money directly to a seller. It should always go to a trusted third-party, like an escrow company, brokerage, or attorney.
It’s a Show of Serious Intent
Earnest money isn’t something to fear—it’s a normal and important part of the homebuying process. It helps build trust between buyer and seller, and with the right protections in place, it’s a deposit that works in your favor.
If you’re unsure how much to offer or how to structure your contingencies, talk to your real estate agent. (That’s what we’re here for!)
P.S. Earnest money isn’t the same as a down payment—but it can count toward it. So don’t worry—you’re not writing a check that vanishes into the ether. Think of it more like the opening move.
Want more tips on buying smart and avoiding costly mistakes? Stick around—we’ve got you covered.
If you’re considering a move or investment and require a trusted Real Estate Broker, we’re here to assist you. Contact us via email at TEAM@McDanielCallahan.com, complete the form below, or give us a call at 925-838-4300. We are ready to provide expert guidance and support for all your real estate needs. Terry McDaniel DRE License #00941526
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