What Is Earnest Money, and How Does It Work?

Earnest money is a good-faith deposit that shows you’re serious about buying a property. In my experience, it’s typically 1%–3% of the purchase price and is held in escrow until closing. If the deal closes, it’s applied toward your down payment or closing costs.

It protects both parties—the buyer demonstrates commitment, and the seller has assurance that the buyer won’t walk away without cause. However, if the buyer cancels outside of agreed contingencies, they could forfeit it. Understanding your contract terms is essential before submitting an offer.