Earnest Money Deposits Explained
Understand what an earnest money deposit is, how much to budget, when it's due, and how it protects both buyers and sellers.
What Is an Earnest Money Deposit?
Last updated: August 2026
An earnest money deposit (EMD) is a good-faith payment that shows a buyer is serious about purchasing a property. When you make an offer on a home, you include an earnest money deposit as part of the offer. If the seller accepts, the deposit is placed into a neutral escrow account.
The deposit protects both parties. For the seller, it provides assurance that the buyer is committed. For the buyer, it is refundable during the contingency period — if something goes wrong with inspections, financing, or the appraisal, the buyer can typically cancel and recover their deposit.
Important: Earnest money amounts and timelines are negotiable and specified in the purchase agreement. This guide provides general information. Always review your contract carefully and consult your Realtor for guidance specific to your transaction.
Key Things Buyers Should Know
Typically 1%–3% of Purchase Price
In the Bay Area, earnest money deposits usually range from 1% to 3% of the purchase price. The exact amount is negotiable and specified in the purchase agreement.
Due Within 1–3 Business Days
The deposit is typically due within 1 to 3 business days after the seller accepts your offer. It is paid to the escrow company, not the seller directly.
Refundable During Contingencies
If you cancel within the contingency periods (inspection, loan, appraisal), your deposit is generally refundable. Once contingencies are removed, the deposit may be at risk.
Applied at Closing
If the transaction closes, your earnest money is applied toward your closing costs or down payment. It becomes part of the funds you've already paid.
When Is Earnest Money at Risk?
Your earnest money is generally safe during the contingency period. If you cancel because of inspection findings, a low appraisal, or loan denial, you typically get your deposit back.
However, after contingencies are removed, backing out of the transaction could put your deposit at risk. The seller may be entitled to keep the earnest money as damages.
This is why it's critical to complete all inspections, secure your financing, and review all disclosures before removing contingencies.
Frequently Asked Questions About Earnest Money
What is an earnest money deposit?
An earnest money deposit (EMD) is a good-faith deposit made by a buyer to show they are serious about purchasing a property. It is held in a neutral escrow account and is applied toward the buyer's closing costs or down payment when the transaction closes.
How much should I budget for earnest money?
In the Bay Area, earnest money deposits typically range from 1% to 3% of the purchase price, though the amount is negotiable. For a $1,000,000 home, that could mean a deposit between $10,000 and $30,000. The amount is specified in the purchase agreement.
When is the earnest money deposit due?
The deposit is typically due within 1 to 3 business days after the seller accepts the offer. The exact timeline is specified in the purchase agreement. The deposit is made to the escrow or title company, not directly to the seller.
Is earnest money refundable?
Yes, earnest money is generally refundable if the buyer cancels the contract within the contingency periods — for example, if the inspection reveals major issues, the appraisal comes in low, or the loan is not approved. Once contingencies are removed, the deposit may be at risk if the buyer backs out.
What happens to the earnest money at closing?
If the transaction closes successfully, the earnest money deposit is applied toward the buyer's closing costs or down payment. It becomes part of the funds you've already paid toward the purchase.
Where is the earnest money held?
The deposit is held in a neutral escrow account managed by the escrow or title company. It is not given directly to the seller or the buyer's Realtor. This protects both parties — the funds are secure and only released according to the terms of the contract.
Questions About Earnest Money?
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