Earnest money — also called a good faith deposit, binder deposit, or escrow deposit — is a sum of money the buyer puts down when submitting an offer to purchase a property. It demonstrates to the seller that the buyer is serious about the transaction and is willing to put money at risk to prove their commitment. The amount is typically 1% to 3% of the purchase price, though it can vary based on market conditions, local customs, and negotiation between the parties.
Once the purchase agreement is executed, the earnest money is deposited into an escrow account held by a neutral third party — usually the title company, real estate brokerage, or attorney. The deposit must be made within the timeframe specified in the contract (typically 1 to 3 business days after acceptance). The escrow agent holds the funds until closing, at which point they are applied toward the buyer's down payment or closing costs.
If the transaction closes successfully, the earnest money reduces the buyer's cash to close — it is credited against the purchase price on the closing disclosure. If the buyer cancels the contract within the terms of a valid contingency (such as a failed inspection, denied financing, or low appraisal), the earnest money is typically refunded to the buyer in full.
However, if the buyer defaults — canceling the contract without a valid contingency or simply failing to close — the seller may be entitled to keep the earnest money as liquidated damages. This is why earnest money matters: it gives the seller confidence that the buyer will follow through, and it creates a financial consequence for buyers who walk away without cause. The specific terms governing earnest money forfeiture are spelled out in the purchase agreement and vary by state.
At Beycome Title, we hold earnest money deposits in a secure, FDIC-insured escrow account and disburse them according to the terms of the purchase agreement. Our escrow services comply with all state regulations, and we provide receipts and accounting for every deposit. If a dispute arises between buyer and seller over the earnest money, we follow the contract terms and applicable law to determine the proper disposition. Get your free closing estimate to plan your transaction costs, including your earnest money deposit.