Earnest Money: Your Good-Faith Deposit, Explained
Earnest money is not an extra fee. It is a deposit toward your purchase, and it can be at risk if you miss a deadline. Here is how it works
The quick take
Earnest money is a good-faith deposit you make after the seller accepts your offer. It is credited toward your purchase at closing. You can lose it if you walk away for a reason the contract does not protect, so deadlines matter.
What earnest money is
Earnest money is a deposit that shows the seller you are serious. You give it after your offer is accepted, and if the sale closes, it is credited toward the money you owe at closing, usually your down payment and closing costs. It is not an extra fee. It is a part of your purchase money that moves in early.
How much is typical?
There is no legal minimum or maximum in Washington, so the amount is negotiated. The sources we looked at put typical deposits in a range from about 1% to 5% of the purchase price, and in competitive situations a larger deposit can make an offer look stronger. On an $800,000 home, 1% to 5% would be $8,000 to $40,000. Your agent can help you pick an amount that fits your situation.
| Home price | 1% | 2% | 3% | 5% |
|---|---|---|---|---|
| $500,000 | $5,000 | $10,000 | $15,000 | $25,000 |
| $800,000 | $8,000 | $16,000 | $24,000 | $40,000 |
| $1,000,000 | $10,000 | $20,000 | $30,000 | $50,000 |
Examples only. In Washington the amount is negotiated, with no legal minimum or maximum. Your agent can help you choose a number that fits your situation.
When is it due, and who holds it?
The timing is spelled out in your purchase and sale agreement, and it is usually within a couple of days after both sides have signed. Missing that deadline can put you in default, so plan ahead and know how you will pay.
You do not hand the money to the seller. A neutral party holds it, typically the escrow company, or in some cases the buyer’s brokerage in a trust account. Escrow generally cannot release the funds to either side without both parties’ written agreement or a court order.
When you get it back, and when you can lose it
Usually refundable: If you cancel under a contingency in your contract, such as inspection or financing, and you give notice on time and in the right form, your deposit is generally returned.
At risk: If you walk away for a reason the contract does not cover, if you miss a contingency deadline, or if you waived a protection to make your offer more competitive.
The standard Washington purchase and sale form also asks the parties to choose how a buyer default is handled. One option limits the seller’s remedy to keeping the deposit. The other lets the seller pursue additional remedies. Which one is checked in your contract matters, so read that section with your agent.
From our experience
We have seen disputes over a deposit that came down to a missed deadline or a notice that was not delivered correctly. The safest habit is to put every contingency date on a calendar the day your offer is accepted, and to deliver notices exactly as the contract says.
Tips for buyers
• Know the deadline and have the funds ready before you write the offer.
• Put every contingency deadline on your calendar on day one.
• Waiving protections to win an offer also puts your deposit at risk. Talk it through first.
• If there is a disagreement, do not assume you can simply ask for the money back. Both sides usually need to sign off, so get advice early.
This post is general information, not legal advice. For a specific default or dispute, a Washington real estate attorney is the right call.
Want the full list of terms?
See our plain-English glossary of real estate terms: www.kellyazzarello.com/jargon
Questions? We are glad to help.
If any of this raises a question about your own situation, reach out. If you need an answer faster, call and we will talk it through.
Kelly Azzarello Real Estate | Compass
Email: kelly@kellyazzarello.com
Phone: (425) 830-6457
Sources and credits
We looked to NWMLS first and then Compass. Neither publishes a plain-language definition of this term, so the points above draw on the sources below, in our own words. General information only, not legal or financial advice. Confirm current details with your agent or lender, since forms and rules change.