In real estate, EM means earnest money — a good-faith deposit a buyer gives after a seller accepts their offer, held by a neutral third party until closing. It typically runs one to three percent of the purchase price, though competitive markets and higher-priced homes can push it past five. Earnest money isn’t legally required; the mutual promises in a purchase agreement already make the contract enforceable. Sellers expect it anyway, because it signals you’re serious and compensates them for pulling the property off the market while you move toward closing.
What the Deposit Actually Does
Earnest money has two jobs. It reassures the seller that you intend to close, since the home stops being shown and other buyers get turned away once you’re under contract. And it creates a financial consequence if you walk away without a valid reason.
Most purchase agreements include a liquidated damages clause. If you default, the seller keeps the deposit as the agreed-upon compensation and doesn’t have to prove exactly what your breach cost them. Some contracts give the seller a choice between keeping the deposit or pursuing other remedies, such as suing for actual losses or asking a court to force the sale through. Courts in different states treat these election clauses differently; some enforce them, others limit the seller to the deposit alone. The contract you sign controls which remedies apply, so read that section before you sign anything.
How Much to Put Down
The amount is negotiated, not fixed by law. In most markets, buyers offer one to three percent of the purchase price. On a $400,000 home, that’s $4,000 to $12,000. In high-demand neighborhoods and luxury segments — parts of the Northeast especially — sellers may expect five to ten percent.
Offering more can help your bid stand out when several buyers are competing for the same property. It also puts more money at risk if the deal collapses. Weigh the competitive edge against the protections your contract actually provides, especially if you’re thinking about waiving contingencies.
How and When You Deliver It
Most purchase agreements require delivery within one to three business days after the seller signs. That deadline is binding. Miss it and the seller may have grounds to cancel. Check whether your contract counts business days or calendar days, and whether there’s a cutoff time on the final day.
The money goes to a neutral third party — usually a title company, escrow agent, or real estate attorney — not to the seller directly. It sits in a dedicated trust or escrow account until closing or until the contract is terminated. Common delivery methods:
- Wire transfer, usually processed the same or next business day. Banks typically charge $25 to $50 for an outgoing domestic wire.
- Certified or cashier’s check, hand-delivered or mailed. Confirm the contract allows this; some agreements require electronic transfers.
- Secure digital platforms offered by some escrow and title companies that pull funds directly from your checking account.
Once the escrow holder receives your deposit, they issue a receipt to both sides confirming the funds are in trust. Keep it. That receipt is your proof you met the deadline.
How Contingencies Keep Your Deposit Refundable
Contingencies are conditions in the purchase agreement that let you cancel and recover your deposit if certain things happen. Without them, walking away almost always means forfeiting the money. Three contingencies do most of the protecting.
Inspection Contingency
This gives you a set number of days to hire an inspector and evaluate the property. If the inspection turns up problems you won’t accept — structural damage, a failing roof, outdated electrical — you can notify the seller in writing and cancel. Send that notice before the deadline, using the method the contract specifies, and you get a full refund. Miss the deadline and the protection expires.
Appraisal Contingency
If the property’s appraised value comes in below your agreed price and you and the seller can’t negotiate a reduction, this contingency lets you walk away with your deposit intact. Without it, you’d have to cover the gap in cash or risk losing the deposit by canceling.
Financing Contingency
Sometimes called a mortgage contingency, this one covers you if your lender denies the loan. Denial can come from underwriting problems or from the property failing to meet the lender’s standards. Many contracts include a loan-approval deadline; once it passes, the contingency may expire, and your deposit becomes non-refundable even if the loan later falls through.
When the Deposit Stops Being Refundable
Your money starts out refundable but doesn’t stay that way. Each contingency has its own deadline. Once a deadline passes without you exercising that contingency, that protection is gone. After all contingency periods expire, the deposit is effectively non-refundable. Cancel the deal at that point without a valid legal reason, and the seller can claim it.
In competitive markets, some buyers deliberately waive contingencies to strengthen their offer. That trades financial risk for a better shot at winning the bid. Before waiving anything, know exactly how much is at stake and which scenarios still trigger a refund under your specific contract.
Some contracts also make the deposit non-refundable from the start — a “hard” deposit. This is more common in commercial transactions or when a seller is choosing among several competing offers. If your contract contains that language, confirm whether it overrides your contingencies or only kicks in after they expire.
What Happens at Closing
If the deal closes, your earnest money is credited toward what you owe at the settlement table. You can apply it to your down payment, closing costs, or other settlement charges; it reduces the cash you need to bring by the full deposit amount.1Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure Guide to the Loan Estimate and Closing If the deposit happens to exceed your total obligations — say the seller covered most closing costs — the surplus comes back to you. The settlement statement itemizes exactly how the deposit was applied.2Consumer Financial Protection Bureau. Appendix A to Part 1024 – Instructions for Completing HUD-1 and HUD-1a Settlement Statements
If Both Sides Claim the Money
When a deal falls apart and buyer and seller both claim the deposit, the escrow holder can’t just hand it over to whoever asks first. They’re a neutral custodian and typically require both parties to sign a release. If you can’t agree, the funds stay put.
Many purchase agreements require mediation before either side can sue. A neutral mediator helps you work toward a resolution. Some contracts penalize the party that skips mediation, for example by barring them from recovering attorney fees even if they later win in court. Check your agreement for a mediation or arbitration clause so you know the required first step.
If mediation fails or isn’t required, the escrow holder may file an interpleader action, depositing the disputed funds with a court and asking a judge to decide who gets them. The holder does this to step out of the middle. The judge then reviews the contract and the circumstances of the failed deal to determine who the money belongs to.
Protect the Wire Transfer Itself
Wire fraud targeting real estate deals is a serious threat. Criminals break into email accounts used by agents, title companies, or lenders and send buyers fake wiring instructions that route the deposit to accounts they control. In 2024, the FBI’s Internet Crime Complaint Center received over 9,300 real estate fraud complaints with reported losses above $173 million. Business email compromise schemes more broadly, which include real estate wire fraud, accounted for over $2.7 billion in losses that year.3FBI Internet Crime Complaint Center. 2024 IC3 Annual Report
Before you wire anything:
- Get wiring instructions in person when you can, directly from the title or escrow office rather than by email.
- If instructions arrive electronically, verify every detail by calling the escrow holder at a number you already have, not one included in the email.
- Treat last-minute changes as a red flag. Title companies and lenders rarely change wiring instructions at the eleventh hour.
- Check sender email addresses closely. Fraudulent ones often differ from legitimate addresses by a single character.
If you suspect funds went to a fraudulent account, call your bank immediately to attempt a recall, then file a complaint at ic3.gov. The FBI’s Recovery Asset Team works with banks to freeze stolen funds; in one 2024 case, agents recovered over $955,000 wired to a spoofed account.3FBI Internet Crime Complaint Center. 2024 IC3 Annual Report