Earnest money (sometimes called a good faith deposit) is the money a buyer puts down when making an offer on a home to show the seller they’re serious about purchasing.

It’s like a security deposit for your offer — proving you’re committed while the sale process moves forward.

• Usually 1%–3% of the purchase price (but can be higher in competitive markets).

• Example: On a $300,000 home, earnest money might be $3,000–$9,000.

• It’s not paid directly to the seller upfront.

• It’s held in an escrow account (by a title company, escrow company, or broker).

• At closing, the earnest money is applied toward your down payment or closing costs.

• If the deal closes → It goes toward the buyer’s purchase costs.

• If the buyer backs out for a valid reason (like issues found during inspections, financing falls through, or appraisal problems under contract terms) → The money is usually refunded.

• If the buyer backs out without a valid reason (outside the contract protections) → The seller may keep the earnest money as compensation for taking the home off the market.

• Shows the seller you’re committed.

• Strengthens your offer in competitive markets.

• Protects the seller from wasted time if a buyer walks away without cause.

👉 In short: Earnest money = the buyer’s “good faith” deposit that says, “I’m serious about this purchase,” and it eventually gets credited back to the buyer if the sale goes through.

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