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Earnest Money Explained: What Every Homebuyer Should Know Before Making an Offer

When you're buying a home, you're not just making an offer—you’re showing the seller you're serious. One way to do that? Earnest money.

Think of earnest money like a security deposit when you rent an apartment. It’s a good-faith deposit you submit alongside your purchase offer to show the seller you're committed to the transaction. But unlike a rental, the stakes—and the amount—can be much higher.

Why Is Earnest Money Important?

In competitive real estate markets, sellers want reassurance that a buyer won’t walk away without reason. That’s where earnest money comes in. It shows you're invested in moving forward and helps protect the seller from unnecessary risk.

Most deposits range between 1% to 3% of the purchase price, and once your offer is accepted, that money is placed into an escrow account managed by a neutral third party.

What Happens to Your Earnest Money?

✅ If everything goes smoothly and you reach the closing table, the earnest money gets applied toward your down payment or closing costs—so it’s not extra money out of your pocket.

❌ If something goes wrong, things can get tricky. If you have valid reasons to back out—like a failed inspection or financing contingency—you’ll typically get your deposit back.

🚫 But if you back out without a valid reason, you could lose your earnest money entirely. That’s why understanding this part of the deal is so important.

Common Issues Buyers Face

Many buyers misunderstand how earnest money works:

• They don’t know how much to offer.

• They fear losing it if something unexpected happens.

• They aren’t sure when they can legally walk away and still get their money back.

• They get caught in escrow disputes that delay the process and cause stress.

These issues are especially common in hot markets, where higher deposits are expected and competition is fierce. A lack of clarity can turn what should be an exciting time into a stressful one.

How We Help You Navigate It All:

🏡 Start your home search with expert guidance so you never feel like you're going it alone.

🚀 Learn 4 proven strategies to sell your current home fast—especially if you need to buy and sell at the same time.

📊 Stay updated with real-time market insights so you can make smarter offers (and avoid costly mistakes).

📞 Have questions about how earnest money works? Reach out today—we’re here to help you make smart, stress-free real estate decisions.