Understanding Earnest Money

Earnest money is one of the first financial commitments you make when buying a home. Understanding how it works helps you protect your deposit and move through the transaction with confidence.\n\nWhat Is Earnest Money?\n\nEarnest money is a deposit you make after your offer is accepted to show the seller you are serious about purchasing the home. It tells the seller that you have skin in the game and are not likely to walk away without reason.\n\nHow Much Should You Offer?\n\nThe amount varies by market and the price of the home. In the Las Vegas Valley, earnest money deposits typically range from 1 to 3 percent of the purchase price. On a $400,000 home, that is $4,000 to $12,000. Your agent can help you determine the right amount based on the market conditions and the seller's expectations.\n\nWhere Does the Money Go?\n\nYour earnest money is held in a neutral escrow account. It is not held by the seller or by your agent. A third-party escrow company or title company holds the funds until closing. At closing, the deposit is applied toward your down payment or closing costs.\n\nCan You Lose Your Earnest Money?\n\nYes, but only under specific circumstances. If you back out of the purchase for a reason not covered by your contingencies, the seller may be entitled to keep your earnest money as compensation for taking the home off the market. Common contingencies that protect your deposit include financing, inspection, and appraisal contingencies. If you exercise these contingencies in good faith and within the agreed timeline, your earnest money is returned.\n\nProtecting Your Deposit\n\nWork with your agent to understand the contingency deadlines in your purchase agreement. Meet every deadline. If you have concerns about the property, address them within the contingency periods. As long as you follow the contract terms, your earnest money is protected.\n\nEarnest money is a sign of good faith and a normal part of every real estate transaction. With the right contingencies in place and an agent guiding you, your deposit is safe throughout the process.