What Buyers Should Know About Earnest Money

by Bobbi Brandt

What Is Earnest Money and How Does It Work When Buying a Home?

At Castle Rock Realty, we love helping our neighbors across South Central Wisconsin feel confident about every step of the home buying process. One question we hear often from buyers is about earnest money. What is it, how much do you need, and when is it due? Let’s break it down in a simple, easy to understand way.

What Is Earnest Money?

Earnest money is often referred to as good faith money. When you make an offer on a home, earnest money shows the seller that you are serious about purchasing their property and that you intend to move forward with the transaction.

In short, it is a way to demonstrate commitment when you submit an offer.

How Much Earnest Money Do You Need?

There is no single required amount of earnest money. The amount can vary based on the seller, the property, and the terms of the offer.

Here is what we commonly see in our local market.

Some sellers may request up to ten percent of the purchase price as earnest money.
More commonly, earnest money falls somewhere between five hundred and five thousand dollars.
The final amount may vary depending on the seller’s expectations and how competitive the situation is.

Your real estate agent can help you decide what amount makes sense for your specific offer.

When Is Earnest Money Due?

As a buyer, you have a couple of options when it comes to timing.

You can submit earnest money at the time you write your offer.
More commonly, buyers deposit earnest money after the offer has been accepted.

Waiting until you have an accepted offer before depositing earnest money is typically the best approach and is very common in our area.

What Happens to Earnest Money at Closing?

Your earnest money is not an extra fee. It is credited back to you at closing and is usually applied toward your down payment or closing costs.

In most cases, buyers see their earnest money come right back to them as part of the final numbers.

Can You Lose Your Earnest Money?

In certain situations, yes. If a buyer defaults on the contract, the seller may have the right to request that the earnest money be released to them.

That said, many factors affect how earnest money is handled, including how the contract is written and what contingencies are in place. This is why communication is so important.