Estimate the earnest money in your transaction.
Earnest money is a good-faith deposit a buyer puts down with an accepted offer to show they are serious about purchasing the home. It is usually held by a neutral third party, such as a brokerage, title company, or attorney, in an escrow account until closing or termination of the contract. If the transaction closes, the earnest money is typically credited toward the buyer’s down payment or closing costs. If the deal falls through under protected contingencies (for example, financing, inspection, or appraisal issues), the buyer usually gets the deposit back; otherwise, they may forfeit it to the seller as compensation for taking the home off the market.
In a hot seller’s market with multiple offers, buyers often offer a larger earnest money deposit (sometimes up to around 5–10% of the price) to make their offer stand out and signal strong commitment. In a slower or buyer’s market with less competition, sellers are typically more flexible and will accept a lower, more standard deposit (often around 1–2%), since simply getting a qualified buyer is the priority. Overall, tighter, more competitive conditions push earnest money amounts up as a negotiation tool, while softer conditions reduce the pressure to put as much at risk upfront.
Earnest money is usually calculated as a percentage of the purchase price, so as the price of the home increases, the absolute dollar amount of the deposit goes up as well. Typical guidelines are in the range of roughly 1–5% of the agreed purchase price, though local custom, property type, and negotiations can push the percentage higher or allow a flat dollar amount instead. Higher-priced or luxury properties, and some new construction, often involve both a larger price and a higher percentage, resulting in substantially larger earnest money commitments from the buyer.
State law and regulations can dictate who is allowed to hold earnest money (for example, a licensed broker, attorney, or title/escrow company) and the type of account it must be kept in, such as a trust or escrow account with no commingling of funds. Some states set specific timelines and procedures for depositing, handling, and releasing earnest money, including what happens if there is a dispute between buyer and seller. In a few jurisdictions, there may also be prescribed default rules in the purchase contract forms or statutes that control when earnest money is forfeited or refunded if contingencies fail or a party breaches.