Earnest Money Deposits: How Much, Who Holds It, When You Lose It

TL;DR: Earnest money is usually 1% to 3% of the purchase price, held by a neutral third party like a title company, escrow agent, or listing broker's trust account, not the seller directly. You get it back if you cancel within a contingency period you negotiated (inspection, financing, appraisal); you lose it if you back out for a reason not covered by the contract, or if you miss a signed deadline.

_Last reviewed: August 2026 · 7 min read_

You just wired several thousand dollars to a stranger's escrow account and you're wondering exactly who has control of it and what happens if the deal falls apart. The rules are set by the purchase contract, not by wishful thinking, and missing one deadline is the single most common way buyers hand their deposit to the seller.

Okoniq Property Hub keeps a record of contract dates, contingency deadlines, and deposit amounts in one place so nothing slips through the cracks during a purchase.

How much earnest money should you put down?

Most contracts call for 1% to 3% of the purchase price, though the number is negotiable and varies by market. On a $400,000 home that's $4,000 to $12,000. In competitive markets like parts of California or Texas, buyers sometimes offer 5% or more to signal they're serious; in slower markets, sellers may accept a flat $500 to $1,000.

The amount is a negotiating chip, not a legal minimum. A larger deposit tells the seller you're less likely to walk, which can matter in a multiple-offer situation. But a larger deposit also means more money at risk if you're the one who breaches the contract. There's no state or federal rule setting the percentage; it's whatever both parties sign off on in the purchase agreement.

Landlords buying a second or third rental property should size the deposit the same way they'd size any other line item on the deal: against the total exposure if financing falls through or an inspection turns up something like foundation cracks that are serious.

Who actually holds the earnest money deposit?

The money goes to a neutral third party, usually a title company, an attorney's escrow account, or the listing broker's trust account, never straight to the seller. This is standard practice in all 50 states and is written into the purchase contract's opening paragraphs.

Once deposited, the funds are frozen until both parties agree in writing on what happens to them, or a court/mediator decides. Neither the buyer nor seller can unilaterally withdraw the money. If a dispute happens, the escrow holder typically requires a mutual release signed by both parties before releasing funds, which is why some earnest money disputes drag on for months even after a deal has clearly died.

Ask for the wire instructions in writing, verified by phone, before sending anything. Wire fraud targeting real estate closings has cost buyers hundreds of millions of dollars nationally; the FBI's Internet Crime Complaint Center has flagged real estate wire fraud as one of the fastest-growing scams for over five years running.

When do you lose your earnest money deposit?

You lose the deposit when you cancel the contract for a reason not protected by a contingency, or you miss a signed deadline. The two most common triggers are backing out after the inspection contingency window closes and failing to secure financing within the agreed timeframe when there's no financing contingency in place.

A typical contract gives buyers 7 to 14 days for inspections, 21 to 30 days for financing approval, and 30 to 45 days to close. If your inspection period ends on day 10 and you don't submit a formal request for repairs or a cancellation notice by that date, you've generally waived your right to walk away and keep the deposit. Sellers can then legally keep the money if you cancel afterward for a covered reason like discovering knob-and-tube wiring that you should have flagged during the inspection window.

| Situation | Deposit outcome | |---|---| | Buyer cancels within inspection period, cites defects | Refunded | | Buyer cancels after inspection deadline passes | Usually forfeited | | Financing falls through, financing contingency in place | Refunded | | Financing falls through, no financing contingency | Usually forfeited | | Seller breaches contract (fails to convey title, etc.) | Refunded, sometimes with damages |

How do you protect your earnest money with contingencies?

Contingencies are the written escape hatches that let you cancel and keep your deposit, and every one of them needs a specific deadline. The three standard contingencies are inspection, financing, and appraisal, and each should have its own date written into the contract rather than a vague "reasonable time."

An inspection contingency lets you walk away or renegotiate if a licensed inspector finds problems, such as roof issues visible from the ground or evidence of a slab leak under the flooring. A financing contingency protects you if your lender denies the loan, which happened to roughly 5% of purchase applications nationally according to recent mortgage industry data. An appraisal contingency protects you if the home appraises below the offer price and you can't or won't cover the gap in cash.

Check the electrical panel and service size too. If the inspection turns up only 100 amp service in a home that needs an upgrade for modern appliances or an EV charger, that's a real cost to negotiate before your inspection window closes, not after.

What happens to earnest money at closing?

At closing, the earnest money is credited toward your down payment and closing costs, it isn't an extra fee on top of what you already owe. The title or escrow company applies the deposit against the total due, so your final wire at closing is reduced by that amount.

If the deal falls through for a covered reason, the escrow holder issues a refund once both parties sign a mutual release or, in a dispute, once a court or arbitrator resolves it. This step is why keeping copies of every signed contingency notice and deadline matters: it's your proof that you cancelled on time.

FAQ

Is earnest money refundable if I just change my mind?

Generally no. If you cancel for a reason outside your contingencies, such as simply deciding you want a different house, the seller can typically keep the deposit as compensation for taking the home off the market.

Can a seller keep earnest money and still sell the house to someone else?

Yes, in most states a seller can keep a forfeited deposit and relist the property, though some states cap the amount a seller can retain as liquidated damages rather than actual losses.

How is earnest money different from a down payment?

Earnest money is paid at contract signing to show good faith and gets credited toward the purchase at closing, while the down payment is the larger sum paid at closing to reduce the loan amount. They're related but not the same transaction.

What if the title company loses or mishandles the funds?

Reputable title and escrow companies carry fidelity bonds and errors-and-omissions insurance specifically for this. Ask for proof of bonding before wiring funds, and always verify wire instructions by phone using a number you look up independently, not one from an email.

Does earnest money go into a special account or the general business account?

By law in most states, earnest money must go into a separate trust or escrow account, never the broker's or title company's general operating account. Commingling client funds with business funds is a licensing violation that can result in fines or loss of license.

This is educational information, not legal or financial advice. Consult a real estate attorney or your state's real estate commission before signing a purchase contract or disputing an earnest money deposit.