You found the house. You’re ready to make an offer. Then someone asks, “How much earnest money are you putting down?”

Wait… what exactly is earnest money? And are you just handing over thousands of dollars that you might never see again? Not necessarily!

Earnest money is a deposit made by the buyer as part of a real estate purchase contract. It shows the seller that you’re serious about moving forward with the purchase. Think of it as putting some money behind your offer. But here’s the important part: earnest money is not the same thing as your down payment, and it isn’t an extra fee you simply lose at closing.

Let’s break it down.

How Much Is Earnest Money?

There isn't one universal amount that every buyer has to put down. The amount of earnest money is part of the offer and can vary depending on the property, the market, the terms of the offer, and what the buyer and seller agree to. You may hear people throw around a percentage of the purchase price, but there is no one-size-fits-all number.

For example, if you're purchasing a $300,000 home, your earnest money could be a specific dollar amount negotiated in the contract rather than simply being a standard percentage.

Your Realtor can help you understand what may be appropriate for the situation you're in and how your earnest money fits into the overall offer.

One thing to remember: More earnest money doesn't automatically make an offer better. It's one piece of the overall offer. Price, financing, contingencies, closing timeline, and other terms can all matter to a seller.

Where Does the Money Go?

Once the contract is signed, the earnest money is typically delivered according to the terms of the contract and held by the designated escrow holder. Depending on the transaction, that could involve a real estate brokerage, title company, attorney, or another party designated by the contract. The seller doesn't simply get to take the money and spend it. The funds are held according to the terms of the agreement while the transaction moves toward closing.

And this is an important distinction: Earnest money is not the same as an escrow account for your mortgage.

You may hear the word escrow again later when talking about property taxes and homeowners insurance. That's a completely different thing. Real estate terminology really does love making simple things sound complicated.

What Happens to Your Earnest Money at Closing?

Here's the good news: Your earnest money generally doesn't disappear when you close.

If the purchase goes through, the deposit is typically credited toward the amount you need to bring to closing, such as your down payment and/or other closing funds, according to the transaction's final settlement figures.

So, for example, if you agreed to put $5,000 in earnest money on a home, that $5,000 doesn't mean you're paying an additional $5,000 on top of everything else.

It's a deposit you've already made toward the purchase. The exact way it is reflected at closing will be shown in your final closing documents.

But What If the Deal Falls Apart?

This is the part buyers really need to understand. Whether you get your earnest money back depends heavily on why the transaction is terminating and what your contract says. A properly written purchase contract can include contingencies that give the buyer certain protections.

For example, a contract may allow a buyer to terminate under specific circumstances involving things like:

• Financing
• Home inspection
• Title issues
• Other agreed-upon contractual conditions

If the buyer terminates for a reason permitted under the contract and follows the required procedures, the earnest money may be returned. But if a buyer simply changes their mind or doesn't perform their contractual obligations without a contractual reason allowing them to terminate, they could potentially put their earnest money at risk. This is why understanding your contract matters so much.

What If the Buyer and Seller Disagree About Who Gets the Money?

Sometimes the buyer believes they're entitled to the earnest money back, while the seller believes they're entitled to keep it. When that happens, the escrow holder generally can't just pick a side and hand the money over. Illinois REALTORS®' earnest-money release procedure explains that disputed funds can remain held until the parties provide the required written instructions or a court resolves the dispute.

And this is one of those situations where your real estate attorney becomes very important.

The Biggest Takeaway for First-Time Buyers

Don't think of earnest money as: “Money I'm giving the seller that I might never see again.”

Instead, think of it as: A good-faith deposit that becomes part of the transaction — with its ultimate outcome determined by the terms of your contract and what happens during the purchase.

And before you sign an offer, make sure you understand:

✅ How much earnest money you're offering
✅ When it needs to be deposited
✅ Who will hold it
✅ What happens to it if you close
✅ What circumstances may allow you to get it back
✅ What happens if the transaction terminates

Your Realtor can help you understand the real estate process and the terms you're being asked to consider. Your attorney can advise you on your legal rights and obligations under the contract.

That's a team you want in your corner. 🤍

Thinking about buying your first home?

You don't have to know all the terminology before you start! That's literally what the process is for. There are a lot of moving pieces, and having someone walk you through them can make the whole thing feel a lot less overwhelming.

If you're thinking about buying in Plainfield or the surrounding Southwest Suburbs, I'm always happy to be a resource — whether you're ready to buy now or you're just trying to figure out what the heck all these real estate terms mean.