As a buyer, you’ll encounter the term “earnest money” early in the process—and it’s one of the first signs that you’re ready to commit to a purchase. But how does it work, and what should you expect in our market? Let’s break it down.
What Is Earnest Money?
Earnest money is a deposit you make to show that you're serious about purchasing a property. It’s submitted at the time your contract is fully executed—meaning both you and the seller have signed and agreed on the terms.
In our market, the initial earnest money is typically between $1,000 and $5,000, depending on the purchase price of the property. This money is held in escrow and applied toward your final purchase price.
What Happens After You Submit Initial Earnest Money?
Once the contract is executed, a five-business-day window begins. During this period, you as the buyer have the opportunity to:
Complete your home inspection
Have your attorney review the contract
Decide whether you want to move forward with the purchase
If, for any reason, you choose to cancel the contract within those five business days, you’re entitled to a full refund of your initial earnest money—no questions asked.
What Comes Next: The Balance of Earnest Money
If you approve both the attorney review and the inspection, you’ll then submit the balance of the earnest money, which is typically 5% of the purchase price.
Here’s a simple example:
For a $1 million purchase, 5% equals $50,000
If you already submitted $5,000 as initial earnest money
You’ll bring in a balance of $45,000 to reach the full 5%
This total earnest money amount is then applied toward your down payment or closing funds—it’s not extra money out of pocket.
What About the Down Payment?
While earnest money is part of your overall financial commitment, it’s not your full down payment. We'll dive deeper into how down payments work in a future blog, but for now, just know that your earnest money goes toward it, helping you build toward the full amount due at closing.
Home Buying Questions Answered by Local Experts
Buying a home involves a lot of moving parts, and earnest money is just one of the first steps. As local real estate professionals who work with home buyers every day, we’re here to make the entire journey more transparent and less overwhelming.
Have more questions about earnest money or your next steps as a buyer?
Reach out to us anytime—we’re here to help make your home buying experience seamless from start to finish.