What is Earnest Money? And Why You Need to Include it with Your Offer


What is it?

The earnest money deposit is an important part of the home buying process. It tells the seller you’re a committed buyer, and it helps fund your down payment.

Without earnest money, you could make offers on many homes, essentially taking them off the market until you decided which one you liked best. Sellers rarely accept offers without deposits.

Assuming that all goes well and your offer is accepted by the seller, the earnest money will go toward the down payment and closing costs. On average, you can expect to hand over 1-2% of the total purchase price as earnest money.

When Do You Pay the Earnest Money, and Who Holds It?

In most cases, after your offer is accepted and you sign the purchase agreement, you give your earnest money deposit to the closing attorney.

After turning over the deposit, the funds are held in an escrow account until the home sale is in the final stages. Once everything is ready, the funds are released from escrow and applied to your down payment at closing.

Can You Get Your Earnest Money Back?

If the deal falls through before the end of the due diligence period you will receive your earnest money back and the seller will keep your due diligence fee. 

If it falls through after the end of the due diligence period the seller will keep the earnest money and due diligence fee. Unless the seller breaches the contract, in which case you will be entitled to both back and possibly other expenses such as the home inspection and appraisal. 

Questions? Let's chat! If you are in the Triangle area of North Carolina, I'd love to be your Realtor. If not, ask me for a recommendation of who you should work with. 

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