Concept
Earnest Money
What it is
Earnest money is the deposit a buyer puts up when they go under contract. It sits with a neutral third party — usually the title company or an attorney’s escrow account — until closing. If the deal closes, it gets credited to you at the table. If it falls apart, who keeps it depends on which contingency you used and whether you actually hit the deadline.
On MLS deals, typical amounts run 1-3% of purchase price. On off-market deals, it’s whatever you and the seller agree to.
Why it matters
Earnest money has two jobs: it shows the seller you’re serious, and it gives them something to collect if you walk for no real reason. Without it, anyone can tie up a house for 30 days and disappear, and the seller burned their best window of motivation for nothing.
The honest frame: earnest money is the price you pay for time. You’re paying the seller to take the house off the market while you run your due diligence. The contract lays out the inspection period, financing contingency, appraisal contingency — each one with a specific date. Miss the deadline on any of them and that protection is gone. At that point the earnest money is no longer fully refundable. If you then walk, the seller keeps it.
That’s also how the strategic buyer in the how-to-find-a-deal video works you over. They push out every deadline under contract — inspection period, appraisal issues, whatever — until you’re so deep in time and holding cost that you’ll accept a price cut on the last day before closing rather than start over. Your earnest money is the reason you’re pot-committed. If you’ve missed your contingency deadlines, even legitimately, you’re negotiating from weakness.
How it shows up
On a direct-to-seller deal, earnest money is also a signal of commitment. A small check reads as soft commitment. A bigger check says I’m not messing around. I use it like a deadline anchor — a visible, physical signal that I’m already moving and the deal is real.
One rule I don’t bend on: earnest money always goes to the title company or escrow agent, never to the seller directly. Seller-held earnest money is how people lose deposits to sellers who don’t actually own the house they’re selling. Neutral third party holding the funds is half the reason earnest money exists.
After the contract is signed, I call the seller to confirm they talked to title. Makes the deal feel real so second thoughts don’t take root. Title’s phone call is the closer.
Related
title company, due diligence, closing costs, inspections, motivated seller, peeing on the tree