What is earnest money

What is earnest money?

Earnest money is a deposit from a buyer to a seller representing a buyer's 'good faith.' The deposit allows the buyer to receive extra time to secure financing and conduct the title search, property appraisal, and inspections before closing. Earnest money is a great way to let the sellers know that you're serious about the offer you're making on their home.

A deposit demonstrates your commitment to the purchase and that you plan to follow through on the contract. But there's a real risk involved: If you withdraw your offer or change your mind, you might lose your deposit and be out of a chunk of cash.

Here are some ways to avoid losing your earnest money:

  1. Make sure it's the home you want. This advice may seem obvious, but it's easy to get swept up in the emotion of the moment. Recognize that you're about to enter into a legally binding contract and that the earnest money is at risk if you change your mind. While circumstances may not allow you to drag your feet on the decision, double-check that you don't have any reservations before you commit.
  2. Don't sacrifice contract contingencies. It is easy to get caught up in the excitement, but don't let your desire for a home cause you to blindly remove contingencies that are built into contracts to protect buyers. Typical contingencies include loan, title search issues, appraisal, and insurance obstacles. Make sure you consult your realtor before you waive these. 
  3. Avoid committing to a home "as is." If you're putting earnest money on an offer for a foreclosed home, don't be too eager to accept any home problem. Take the time to understand the home's issues before writing the offer.
  4. Read the contract timelines. It is imperative to look at closing dates and other dates related to the process leading up to closing. Violating the timeline could also cost you your earnest money.
  5. Ensure you have recourse to get some or all of your earnest money back. If the sale doesn't finalize, you and the buyer must sign a document voiding the agreement. Before you sign, make sure you understand how it will impact your earnest money refund. If you don't sign off, the seller's title can be negatively impacted, so keep your leverage handy until you are satisfied that you have been treated fairly.


In the end, it is vital to protect yourself and your down payment by playing smart with your earnest money. If you have questions or concerns, get in touch with me to help you understand everything in plain language!

If you are ready to buy a home, let me help you find the right home and protect your interests along the way! 

John Gorden