--- title: What is Earnest Money in Real Estate? description: “Earnest money” is a means for demonstrating serious intent and sincerity. Typically, a potential buyer pays earnest money to a seller to indicate that their offer to purchase property is in good faith. From the seller's perspective, receiving earnest money provides some assurance that the prospective buyer won’t abandon the transaction without cause. Learn more. image: https://www.realized1031.com/hubfs/Images/photo/abstract/money-made-house-IS-147062618.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # What is Earnest Money in Real Estate? Posted Oct 29, 2022 ![money-made-house-IS-147062618](https://www.realized1031.com/hs-fs/hubfs/Images/photo/abstract/money-made-house-IS-147062618.jpg?width=750&height=501&name=money-made-house-IS-147062618.jpg) The Merriam-Webster Dictionary defines “earnest” as a serious and intent mental state or a considerable and impressive degree. Similarly, synonyms-thesaurus.com shows that synonyms for earnest include ardent, sincere, sober, and purposeful. From these clues, we can discern that “earnest money” is a means for demonstrating serious intent and sincerity. Typically, a potential buyer pays[ earnest money](https://www.realized1031.com/glossary/earnest-money) to a seller to indicate that their offer to purchase property is in good faith. From the seller's perspective, receiving earnest money provides some assurance that the prospective buyer won’t abandon the transaction without cause. ### How much earnest money is customary? There are no rules, but one percent of the purchase price is a typical offer for earnest money. Of course, in a hot market, sellers may ask for more. The earnest money deposit stays in escrow while negotiations continue, including any requested inspections and appraisals. The time may also include the opportunity for the buyer to solidify financing. In deals that end with a completed purchase, the earnest money typically becomes part of the down payment. While earnest money is nearly always expected in residential transactions, it's not always part of a commercial deal. Whether it is requested and how much is necessary depends on the market conditions. ### What happens if the deal falls apart? In many cases, the earnest money deposit is refundable, but it depends on why the transaction has failed and the contract terms. Usually, the deal will include deadlines for inspections, appraisals, and financing, so the seller isn't waiting with no agreement forthcoming but still giving the buyer adequate time to complete the tasks. If the buyer can’t get financing, they may have to forfeit the earnest money deposit unless the contract specifically states otherwise. On the other hand, if the seller backs out of the deal or there is an issue uncovered in an inspection, the funds will usually be returned to the prospective buyer. ### Where should the money be held? [Escrow](https://www.realized1031.com/blog/what-does-escrow-mean-in-real-estate) is the best place to hold earnest money and any other funds that need to be deposited during a real estate transaction. Escrow funds are typically overseen by a title company or sometimes an attorney. The escrow agent is the custodian of the money and only releases them after each side has met their contractual obligations. The agent can return the earnest money to the potential buyer if the sale falls through or to the seller if the buyer backs out. However, if the deal is executed successfully, the agent will apply the escrow funds toward the purchase price or closing costs, depending on the terms of the deal.   This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Learn Ways To Help Build Long-Term Real Estate Wealth [![Get Tips For Managing Real Estate Wealth](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/IPWM-eBook-250c.jpg?width=250&height=250&name=IPWM-eBook-250c.jpg "Learn new ways to use real ...") ](https://www.realized1031.com/blog/what-is-earnest-money-in-real-estate#blogform) Download eBook ---   --- ### Get Tips For Managing Real Estate Wealth ![Learn Ways To Help Build Long-Term Real Estate Wealth](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/IPWM-eBook-550.jpg?width=550&height=650&name=IPWM-eBook-550.jpg) Learn new ways to use real estate to pursue your wealth goals. By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received. Search ### [Why Realized](https://www.realized1031.com/why-realized) - [Wealth Management](https://www.realized1031.com/the-wealth-management-gap) - [Why Realized](https://www.realized1031.com/why-realized) - [Our Process](https://www.realized1031.com/how-realized-works) - [Scenarios](https://www.realized1031.com/scenarios) - [Private Client Program](https://www.realized1031.com/private-client) - [Realized Exchange Services](https://www.realized1031.com/realized-exchange-services) ### [The Company](https://www.realized1031.com/about-us) - [The Team](https://www.realized1031.com/about-us) - [FAQ](https://www.realized1031.com/frequently-asked-questions) - [Testimonials](https://www.realized1031.com/testimonials) - [Press](https://www.realized1031.com/press) - [Careers](https://www.realized1031.com/careers) ### [Partners](https://www.realized1031.com/partners) - [Financial Advisors](https://www.realized1031.com/advisor) - [Broker Dealers](https://www.realized1031.com/partners/broker-dealers) - [Real Estate Agents](https://www.realized1031.com/partners/real-estate-agents) - [Certified Public Accountants](https://www.realized1031.com/partners/certified-public-accountants) ### [Resources](https://www.realized1031.com/resources) - #### Learn - [Articles](https://www.realized1031.com/blog) - [Glossary of Terms](https://www.realized1031.com/glossary) - [Capital Gains Tax Rates](https://www.realized1031.com/capital-gains-tax-rate) - #### Watch - [Video Library](https://www.realized1031.com/videos) - [Webinar Archive](https://www.realized1031.com/webinars) - #### Read - [Delaware Statutory Trust](https://www.realized1031.com/delaware-statutory-trust) - [Tenants-In-Common](https://www.realized1031.com/tenants-in-common-tic) - [1031 Exchange](https://www.realized1031.com/1031-exchange) - [Qualified Intermediary](https://www.realized1031.com/qualified-intermediary) - [Qualified Opportunity Zones](https://www.realized1031.com/opportunity-zones) #### Realized - 500 W 13th Street Austin, TX 78701 - (877) 797-1031 ##### [Contact Us](https://www.realized1031.com/contact-us) - [![Realized on Facebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-facebook-whiterev.png?width=60&height=60&name=social-facebook-whiterev.png)](https://www.facebook.com/Realized/) - [![Realized on LinkedIn](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-linkedin-whiterev.png?width=60&height=60&name=social-linkedin-whiterev.png)](https://www.linkedin.com/company/realized/) - [![Realized on YouTube](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-youtube-whiterev.png?width=60&height=60&name=social-youtube-whiterev.png)](https://www.youtube.com/c/Realized1031?sub_confirmation=1) - [![Realized Holdings, Inc. BBB Business Review](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/bbb/RZH2-bbb-seal.png?width=40&height=65&name=RZH2-bbb-seal.png)](http://www.bbb.org/central-texas/business-reviews/real-estate-investors/realized-holdings-llc-in-austin-tx-1000112948/#bbbonlineclick) - [![FEA Logo](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/fea/RZH2-fea-logo.png?width=82&height=65&name=RZH2-fea-logo.png "FEA Logo")](https://www.1031.org) SECURITIES DISCLOSURE Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized Holdings”). Securities and/or Investment Advisory Services may be offered through Registered Representatives or Investment Advisor Representatives of Realized Financial, Inc. ("Realized"), a broker/dealer, member [FINRA](https://www.finra.org)/[SIPC](https://www.sipc.org/), and registered investment adviser. Realized is a subsidiary of Realized Holdings, Inc. ("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333). Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "The Merriam-Webster Dictionary defines “earnest” as a serious and intent mental state or a considerable and impressive degree. Similarly, synonyms-thesaurus.com shows that synonyms for earnest include ardent, sincere, sober, and purposeful. From these clues, we can discern that “earnest money” is a means for demonstrating serious intent and sincerity. Typically, a potential buyer pays earnest money to a seller to indicate that their offer to purchase property is in good faith. From the seller's perspective, receiving earnest money provides some assurance that the prospective buyer won’t abandon the transaction without cause. How much earnest money is customary? There are no rules, but one percent of the purchase price is a typical offer for earnest money. Of course, in a hot market, sellers may ask for more. The earnest money deposit stays in escrow while negotiations continue, including any requested inspections and appraisals. The time may also include the opportunity for the buyer to solidify financing. In deals that end with a completed purchase, the earnest money typically becomes part of the down payment. While earnest money is nearly always expected in residential transactions, it's not always part of a commercial deal. Whether it is requested and how much is necessary depends on the market conditions. What happens if the deal falls apart? In many cases, the earnest money deposit is refundable, but it depends on why the transaction has failed and the contract terms. Usually, the deal will include deadlines for inspections, appraisals, and financing, so the seller isn't waiting with no agreement forthcoming but still giving the buyer adequate time to complete the tasks. If the buyer can’t get financing, they may have to forfeit the earnest money deposit unless the contract specifically states otherwise. On the other hand, if the seller backs out of the deal or there is an issue uncovered in an inspection, the funds will usually be returned to the prospective buyer. Where should the money be held? Escrow is the best place to hold earnest money and any other funds that need to be deposited during a real estate transaction. Escrow funds are typically overseen by a title company or sometimes an attorney. The escrow agent is the custodian of the money and only releases them after each side has met their contractual obligations. The agent can return the earnest money to the potential buyer if the sale falls through or to the seller if the buyer backs out. However, if the deal is executed successfully, the agent will apply the escrow funds toward the purchase price or closing costs, depending on the terms of the deal. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.", "articleSection" : [ "Real Estate Investing" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2022-10-29T12:00:00+0000", "datePublished" : "2022-10-29T12:00:00+0000", "description" : "“Earnest money” is a means for demonstrating serious intent and sincerity. Typically, a potential buyer pays earnest money to a seller to indicate that their offer to purchase property is in good faith. From the seller's perspective, receiving earnest money provides some assurance that the prospective buyer won’t abandon the transaction without cause. Learn more.\n", "headline" : "What is Earnest Money in Real Estate?", "image" : { "@type" : "ImageObject", "height" : 501, "url" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/Images/photo/abstract/money-made-house-IS-147062618.jpg", "width" : 750 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/what-is-earnest-money-in-real-estate", "name" : "What is Earnest Money in Real Estate?", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/Images/photo/abstract/money-made-house-IS-147062618.jpg" } ```