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Earnest Money
Definition
A good-faith deposit showing serious intent to purchase a property.
Explanation
Earnest money (1-3% of purchase price) is deposited into escrow when making an offer. At closing, it's credited toward the down payment. Contingencies (inspection, financing, appraisal) protect your deposit if you need to cancel.
If you back out without a valid contingency, the earnest money may be forfeited to the seller.
Example
$400,000 offer with 2% earnest money = $8,000 in escrow. If inspection reveals major issues and you cancel per contingency, you get it back.