What Is Earnest Money in Real Estate?

If you’ve ever bought or sold a home, you may have heard the term “earnest money.” But what exactly is it, and why does it matter in a real estate transaction? Let’s break it down.

The Basics: A Good-Faith Deposit

Earnest money is a deposit made by the buyer when they put in an offer on a home. Think of it as a way of showing the seller, “I’m serious about buying this property.”

This money is typically held in an escrow account (by the title company, real estate brokerage, or attorney) until closing.

How Much Is It?

In most cases, earnest money is 1%–3% of the purchase price. For example, if you’re buying a $400,000 home, you might expect to put down anywhere from $4,000 to $12,000.

However, the exact amount can vary based on local customs, the competitiveness of the market, and the terms negotiated between buyer and seller.

What Happens to Earnest Money?

• At Closing: Your earnest money is applied toward your down payment or closing costs.

• If the Deal Falls Through (with a valid reason): Buyers usually get their money back if they back out due to contingencies—such as inspection issues, financing problems, or the home not appraising at the agreed price.

• If the Buyer Walks Away Without Cause: The seller typically keeps the earnest money as compensation for taking their home off the market.

Why It Matters for Buyers

Putting down earnest money makes your offer stand out—especially in competitive markets. Sellers want reassurance that you’re committed, and a strong earnest money deposit can give them more confidence in your offer.

Why It Matters for Sellers

Earnest money protects sellers from wasted time. It ensures buyers have some “skin in the game” and are less likely to walk away for no reason.

Final Thoughts

Earnest money is a small piece of the real estate process, but it plays a big role in building trust between buyers and sellers. Whether you’re buying your first home or selling your current one, understanding how earnest money works can help you make smarter decisions along the way.

📌 Thinking about buying or selling a home in Chicagoland? I’d be happy to walk you through the process and answer all your questions.

Frank Campobasso
Century 21 Circle
🌐 www.camposellshouses.com
📲 772-425-6265
⭐ Client Reviews: https://profile.realsatisfied.com/Frank-Campobasso