Quick answer: Earnest money is a good-faith deposit you include with your offer to show you’re serious. In the Bay Area it typically runs 1–3% of the purchase price, held in escrow and applied to your down payment at closing. If you cancel for a reason your contract protects (a contingency), you generally get it back.
Key takeaways
- Earnest money signals a serious offer to the seller.
- Typically 1–3% of the price in competitive markets.
- It’s held in escrow, not paid to the seller directly.
- It’s applied toward your down payment or closing costs.
- Contingencies protect your deposit if you cancel for a covered reason.
How much earnest money should you offer?
A stronger deposit can make your offer more attractive, but you don’t want to over-expose your cash. On a $900,000 home, 1–3% is roughly $9,000–$27,000. Your agent helps you choose an amount that’s competitive yet protected.
When do you get it back?
Your deposit is generally refundable if you cancel within the terms of a contingency — for example, if the inspection reveals a serious issue or your loan falls through (while those contingencies are active). If you walk away for a non-covered reason after removing contingencies, you may forfeit it.
Protecting your deposit
Keep your contingency timelines clear and communicate with your lender so you don’t remove protections prematurely. For the full roadmap, see our Home Buyer’s Guide.
Frequently Asked Questions
What is earnest money?
A good-faith deposit submitted with your offer to show the seller you’re serious. It’s held in escrow and credited toward your costs at closing.
How much earnest money is normal?
In the Bay Area it’s commonly 1–3% of the purchase price, higher in competitive situations to strengthen an offer.
Is earnest money refundable?
Usually yes if you cancel within an active contingency period. It may be at risk if you back out after removing contingencies for a non-covered reason.
Where is earnest money held?
In a neutral escrow or title account — not paid directly to the seller — until the transaction closes or is canceled.
Does earnest money go toward the down payment?
Yes. At closing it’s applied to your down payment or closing costs, so it’s not an extra expense.
Written by Surbhi Gupta, REALTOR® · CA DRE# 02314083 · eXp Realty of California, Inc. Serving Fremont, Union City, Newark, Hayward & Milpitas. This article is for general education, not financial advice — confirm current figures with a licensed professional.
