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What is a Deposit (aka “Earnest Money”) in Real Estate?

Will Featherstone

Having the right real estate agent means having someone who is committed to helping you buy or sell your home with the highest level of expertise in y...

Having the right real estate agent means having someone who is committed to helping you buy or sell your home with the highest level of expertise in y...

Feb 7 3 minutes read

For those who may be looking to buy a home for the first time, you may have heard “deposit” and “earnest money” talked about in relation to putting an offer on a home. Here are a few commonly asked questions about deposits to help start you out on the buying process! 

What’s a deposit? 

A deposit is sometimes also referred to as “earnest money.” This money is meant to show home sellers that you are serious about buying a home. It also is put towards your downpayment and any closing costs. 

How much is a deposit? 

This will vary depending on your location, the state of the real estate market, and what your seller may be asking for. But often, a deposit is 1-2% of the price of the home. So, for a home that is $200,000, this could range anywhere from $1,000 to $2,000. 

When is a deposit due? 

You will need to submit your deposit with the offer on the home. This shows the seller that your offer is serious. 

What happens if a deposit is late? 

If the deposit is late, you risk being in breach of contract. Your deposit should typically be received within 5-7 days of contract acceptance.

Is your deposit insured? 

The terms of your purchase agreement will determine under what conditions you may get a refund if the deal does not go through. 

Can I refuse to provide a deposit? 

If it is part of your agreement to not provide a deposit, then you can refuse. However, if a deposit is part of what the sellers are looking for and requiring, then it is probably a waste of time to make an offer and then refuse to submit a deposit. 

What happens to my deposit if I don’t get financing? 

Whether or not you get your deposit back will be determined by deadlines in your purchase contract. In most cases, you will get your deposit back because of a financing contingency in the contract. This ensures you are protected if you cannot obtain financing. 

What happens to my deposit if I don’t waive the home inspection clause? 

If a problem is found during a home inspection, you do not have to follow through and buy the home. You can get your deposit back. 

If I’m a seller, what happens to the deposit if your buyer doesn’t close on the transaction? 

If a buyer gets cold feet and abandons the deal, the seller gets to keep the deposit in most cases. 

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