What Is Earnest Money, and Do I Get It Back?
The Espresso ShotEverything all at once. Short and strong.
- It’s a deposit, often 1% to 3% of the price, and it counts toward your costs at closing.
- You get it back if you leave for a reason your contract allows, on time. Miss a deadline and you could lose it.
- Before you wire it, call escrow at a number you looked up yourself and confirm the instructions.
Your offer is accepted, and a day or two later you’re writing a check for thousands of dollars before you own anything. That’s earnest money, and it makes a lot more sense once you know where it goes and what it’s for.
Earnest money is a deposit you put down when your offer is accepted, to show the seller you mean it. Once they say yes, they take the house off the market and turn other buyers away. Earnest money is the seller’s reason to believe you.
It isn’t an extra fee. The money doesn’t disappear. At closing, it counts toward your down payment and closing costs. You’re paying part of what you were already going to pay, just sooner.
How much. There’s no set amount. It’s often somewhere around 1% to 3% of the price, so on a $650,000 house, roughly $6,500 to $19,500. A bigger deposit can make an offer stronger, because it tells the seller you’re committed. Your agent will know what’s typical for the house and the market that week.
Who holds it. Not the seller. In Washington, it usually goes to the closing agent, often an escrow company, a neutral party that holds it until closing. Washington’s standard purchase agreement gives you two days after your offer is accepted to deliver it, unless the contract sets a different date.
When you get it back. If the deal falls apart for a reason your contract allows, the money comes back to you. That’s what your contingencies are for: if the inspection turns up something you can’t live with, or your loan doesn’t come through, and you follow the contract’s steps on time, you can step away with your deposit.
When you could lose it. If you back out without a reason the contract allows, the seller may get to keep it. The same can happen if you let a deadline slip, like the end of your inspection period, and then try to leave. That’s why the dates matter as much as the house.
Washington puts a ceiling on it. Many purchase agreements here say that if the buyer walks away without a legal reason, the seller keeps the earnest money and that’s the end of it. State law allows that only up to 5% of the price. On that $650,000 house, that’s $32,500. A deposit above that isn’t covered by the rule, which is one more reason to settle the amount with your agent.
Watch out for wire fraud. Scammers know buyers are about to move a lot of money, and they send fake emails with new wiring instructions that look like they came from escrow or your agent. Before you send a dollar, call the escrow office at a number you looked up yourself, not one from an email, and confirm the instructions out loud. Wired money is very hard to get back.
Once it’s deposited, it stays put. If the buyer and seller disagree about who gets it, escrow usually can’t simply pick a side. The money waits until both sign a release, or a court decides.
Earnest money isn’t a test. It’s the first piece of your down payment, and with the dates on your calendar, it ends up exactly where you meant it to go.