The buyer's good-faith deposit to bind the contract.
Earnest money is a deposit a real estate buyer makes at contract signing as evidence of good-faith intent to close the deal. The earnest money is held in escrow by a neutral party (typically the title company or attorney) and is credited to the buyer at closing — or forfeited to the seller if the buyer breaches the contract.
Earnest money serves a specific economic function: it gives the buyer skin in the game and the seller protection against tire-kickers. A buyer who puts down $20,000 has real motivation to close; a seller who takes the property off market for 30–60 days deserves compensation if the buyer walks for non-contractual reasons. Without earnest money, contracts would essentially be free options for buyers.
The structure of earnest money varies meaningfully by state and deal type. Residential transactions typically have 1–3% earnest money, fully refundable during the inspection / financing contingency period, then "going hard" (non-refundable except for specific causes) after contingencies expire. Commercial transactions often have larger deposits ($25k–$500k+) with shorter contingency periods and more aggressive forfeiture provisions.
Hard money in this context refers to non-refundable earnest money, not the hard money loan product. On a commercial deal, the buyer might put down $50,000 initially fully refundable during 30-day due diligence, then have an additional $25,000 "go hard" after diligence completion. The seller takes the property off-market with confidence the buyer will close — and the buyer has tested the deal before making the additional non-refundable commitment.
Earnest money disputes can become contentious. If a buyer walks away citing a contingency, the seller may dispute the basis and refuse to release the deposit. Most contracts require both parties to sign for release of escrowed earnest money, meaning disputed deposits get stuck in escrow until resolved (sometimes through litigation). Investors should understand the contingency framework carefully before posting significant earnest money.
| Purchase price | $4,500,000 |
| Initial earnest money | $50,000 (fully refundable during diligence) |
| Diligence period | 30 days |
| Additional deposit at end of diligence | $50,000 (this becomes non-refundable) |
| Total earnest money at closing | $100,000 (~2.2%) |
| Closing date | 45 days after diligence ends |
| Credit to buyer at closing | $100,000 (applied to purchase price) |
A buyer's deposit at contract signing showing good-faith intent to close. Held in escrow, credited at closing, or forfeited to the seller if the buyer breaches.
Initially yes — during financing, inspection, and other contingency periods. Once contingencies expire (the money "goes hard"), it's typically non-refundable except for very specific causes like seller breach.
Residential: $1,000 minimum; typically 1–3% of price. Commercial: 2–10% of price, often $25k+ on larger deals.
When earnest money becomes non-refundable. Usually triggered by expiration of contingency periods or by contract milestones (e.g., end of due diligence).
Most escrow agreements require both buyer and seller to sign for release. Disputed deposits sit in escrow until resolved by agreement or litigation. Read the contract's earnest money provisions carefully.
Matrix executes on commitment letters reliably — your earnest money is protected by a lender who closes on schedule.
