Earnest Money FAQs
How good-faith deposits work in 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.
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. On a $400,000 home, 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
When It's Paid
The earnest money deposit is typically due 1-3 days after the contract is accepted. The deadline is generally written into the purchase contract. The deposit is usually made by wire transfer.
Who Holds It
Earnest money is held in escrow by the listing agent or the title company. The funds are not accessible to either party until the transaction closes or both sides agree to a release.
At Closing
When the transaction closes successfully, the earnest money is applied as a credit toward the buyer's total amount due at closing.
When Your Earnest Money Is Refundable
Purchase contracts typically include contingencies that protect the buyer's earnest money.
During the attorney review period
Residential contracts generally include an attorney review period. Either party can cancel during this contingency.
During home inspection
If the parties cannot agree on the inspection response, the buyer can terminate under the inspection contingency.
Financing contingency (mortgage denial)
When a buyer is unable to secure a written mortgage commitment, the financing contingency protects the deposit.
Title defects
If the title cannot be cleared as required under the contract, the buyer can cancel the contract.
When You Might Lose Your Earnest Money
Canceling after contingencies have expired
Once all contingencies have been satisfied, cancellation without a contractual basis generally entitles the seller to keep the earnest money as liquidated damages.
How Much Earnest Money Should You Put Down?
The right amount 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.
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
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 represents buyers and sellers throughout Chicagoland real estate transactions. Call (630) 299-7600 or schedule a consultation.