Earnest Money Deposits
How good faith deposits work in Illinois real estate transactions.
What Is an Earnest Money Deposit?
An earnest money deposit — commonly referred to as EMD — is a good faith payment made by a buyer when they enter into a contract to purchase real property. The deposit signals to the seller that the buyer is serious about completing the transaction and is willing to put money on the line to prove it.
In Illinois, earnest money deposits are a standard part of residential real estate transactions. The typical deposit ranges from 1% to 3% of the purchase price, though the amount is negotiable between the parties. On a $400,000 home in Chicagoland, that translates to a deposit of $4,000 to $12,000.
The earnest money is held in escrow throughout the transaction and is credited toward the buyer's down payment and closing costs at closing. If the deal falls through, whether the buyer gets the money back depends on the contract terms and the reason the transaction did not close.
How Earnest Money Works in Illinois
When It's Paid
The earnest money deposit is typically due within one to three business days after the seller accepts the buyer's offer. The exact deadline is written into the purchase contract. The deposit is usually made by personal check or certified funds.
Who Holds It
In Illinois, the earnest money is held in escrow by the seller's attorney or a title company. The funds sit in a dedicated trust account and are not accessible to either party until the transaction closes or both sides agree to a release. This protects the buyer from a seller spending the deposit prematurely and protects the seller by ensuring the funds are secured.
At Closing
When the transaction closes successfully, the earnest money is applied as a credit toward the buyer's total amount due at closing. It reduces the cash the buyer needs to bring to the closing table.
When You Can Get Your Earnest Money Back
Illinois purchase contracts include several contingencies that protect a buyer's earnest money deposit. If any of these contingencies are properly invoked, the buyer is entitled to a full refund:
During the attorney review period
Illinois residential contracts include a five-business-day attorney review period. Either party can cancel the contract during this window, and the buyer receives a full refund of their earnest money.
Failed home inspection contingency
If the home inspection reveals material defects and the buyer and seller cannot agree on repairs or credits, the buyer can terminate the contract and recover their deposit under the inspection contingency.
Financing contingency (mortgage denial)
When a buyer is unable to secure mortgage financing despite a good faith effort, the financing contingency protects the deposit. The buyer must provide documentation of the denial to receive a refund.
Title defects discovered during title search
If the title search reveals liens, encumbrances, or ownership disputes that the seller cannot resolve, the buyer can cancel the contract and reclaim their earnest money.
Seller fails to meet contractual obligations
If the seller breaches the contract — for example, by failing to make agreed-upon repairs, missing deadlines, or being unable to deliver clear title — the buyer is entitled to a refund of the earnest money deposit.
When You Might Lose Your Earnest Money
There are circumstances where a buyer's earnest money deposit is at risk. Understanding these situations helps you avoid costly mistakes:
Backing out after contingencies expire
Once all contingency periods have passed and the contract is fully binding, walking away from the deal without a contractual basis means the seller is typically entitled to keep the earnest money as liquidated damages.
Missing contractual deadlines
Failing to meet deadlines outlined in the contract — such as providing mortgage commitment letters or completing inspections within the specified timeframe — can put your deposit at risk.
Failing to secure financing after waiving contingency
If a buyer waives the financing contingency to make their offer more competitive and then cannot obtain a mortgage, the seller may have grounds to retain the earnest money deposit.
How Much Earnest Money Should You Put Down?
The right amount of earnest money depends on the local market, the property, and how competitive you want your offer to be. In Chicagoland, the standard range is 1% to 3% of the purchase price. Here is a general guideline:
1%
Lower end — common for slower markets or when there is less competition
1-3%
Standard range — typical for most transactions in the Chicago suburbs
3%+
Competitive markets — multiple offers, hot neighborhoods, or desirable properties
Putting down a larger earnest money deposit can make your offer stand out in a competitive situation, but it also means more money is at risk if the deal falls apart outside of a contingency. Your attorney at REAL Law Group can help you determine an amount that strengthens your offer while keeping your risk manageable.
Frequently Asked Questions
Questions about earnest money? Contact us.
REAL Law Group protects buyers and sellers throughout Chicagoland real estate transactions. Call (630) 299-7600 or schedule a consultation.