When you make an offer on a house, the seller wants proof you're committed. That proof is earnest money—a deposit you submit with your offer that shows good faith and gets credited toward your purchase at closing.
How much is typical
Earnest money usually ranges from one to three percent of the purchase price, though the amount varies by market conditions and negotiation. On a $400,000 home, expect to deposit somewhere between $4,000 and $12,000. In competitive markets, a larger deposit can make your offer stand out. In slower markets, sellers may accept less. Your agent will advise on local norms, but the figure is ultimately negotiable.
Who holds the deposit
You don't hand earnest money directly to the seller. Instead, it goes into an escrow or trust account managed by a neutral third party—typically the title company, escrow officer, or the seller's brokerage. The funds stay there, untouched, until closing or until the contract terminates. This protects both parties: the seller knows the money is secure, and you know it won't be released without proper cause.
Where it goes at closing
If the transaction closes, your earnest money is credited toward your down payment and closing costs. It doesn't disappear or add to your out-of-pocket expense—it's part of the cash you were already planning to bring. The settlement statement will show the deposit as a buyer credit, reducing the final amount due at the closing table.
When you get it back
You recover your earnest money if the contract falls through for a reason covered by a contingency. Common contingencies include:
- · **Financing contingency**: If your loan is denied despite good-faith effort, you get the deposit back.
- · **Appraisal contingency**: If the home appraises below the purchase price and you can't renegotiate or cover the gap, you're protected.
- · **Inspection contingency**: If the inspection reveals significant defects and the seller won't repair or credit them, you can walk away with your deposit.
- · **Title contingency**: If title issues surface that the seller can't resolve, you're refunded.
Contingency deadlines matter. Miss a deadline, and you may lose the protection.
When you lose it
If you back out for a reason *not* covered by a contingency—or you simply change your mind—the seller typically keeps the earnest money as liquidated damages. This compensates them for the time the property was off the market and the deal that didn't close. Some contracts allow partial forfeiture or arbitration; read yours carefully.
The Alliance take
Earnest money isn't a fee—it's your own money, held in trust and applied at closing. Protect it by understanding your contingencies, meeting every deadline, and staying in close contact with your agent and lender. Every contract is different, so review yours with your agent before you sign. Ready to move forward? Start an application and we'll help you coordinate the timeline.