What Is Earnest Money? A Simple Guide for Buyers and Sellers

If you’re buying or selling a home, you’ve probably heard the term “earnest money.” It’s one of the most common questions I get from clients. What exactly is it? Who holds it? And what happens to it if the deal falls apart?

Let’s break it down in simple terms.

What Is Earnest Money?

Earnest money is a good faith deposit a buyer submits when making an offer on a home. It shows the seller that the buyer is serious about purchasing the property.

Think of it as putting “skin in the game.”

When a seller accepts an offer, the buyer typically submits the earnest money to a title company or escrow company, where it is held until closing.

How Much Is Earnest Money?

There isn’t a one-size-fits-all amount, but in many markets it typically ranges from 1%–3% of the purchase price.

For example:

• $500,000 home → Earnest money might be $5,000 – $15,000

In competitive markets, buyers sometimes increase their earnest money to make their offer more attractive.

What Happens to the Earnest Money?

In most cases, the earnest money is credited toward the buyer’s closing costs or down payment at closing.

So the buyer doesn’t lose the money—it simply becomes part of the funds needed to purchase the home.

Can a Buyer Get the Earnest Money Back?

Yes, in many situations.

Most real estate contracts include contingencies that protect the buyer, such as:

• Inspection contingency

• Financing contingency

• Appraisal contingency

If a buyer cancels the contract within these contingency deadlines, they typically receive their earnest money back.

When Would the Seller Keep the Earnest Money?

If a buyer backs out after all contingencies have been removed, the seller may have the right to keep the earnest money as compensation for the failed contract.

That’s why it’s important to work with an experienced real estate professional who can guide you through the contract timelines and deadlines.

Why Earnest Money Matters to Sellers

For sellers, earnest money provides reassurance that the buyer is serious and financially capable of completing the purchase.

A strong earnest money deposit can sometimes make an offer more appealing than another offer with a lower deposit.

The Bottom Line

Earnest money is simply a deposit that shows a buyer is serious about purchasing a home. It protects the seller while also giving the buyer time to complete inspections, secure financing, and move forward with confidence.

Real estate contracts have many moving parts, which is why having an experienced agent on your side can make the process much smoother.

Have questions about buying or selling a home in the Denver area?
With over 29 years of experience, I’m always happy to help.

Sue Monroe
303-717-7349