Short Answer
Earnest money is a deposit you make when your offer is accepted to show the seller you are serious about buying. It is typically 1% to 3% of the purchase price. In South Jersey, on a $400,000 home, that is $4,000 to $12,000. The money is held in escrow and applied to your down payment at closing. If you back out without a contractual reason, the seller may keep the earnest money.
Earnest money protects the seller if the buyer backs out of the deal for reasons not covered by contract contingencies. The deposit shows you are committed to the transaction. If the deal closes successfully, the earnest money is credited toward your down payment or closing costs. If the deal falls apart because of a contingency in your contract, like a failed inspection or financing issue, you get your earnest money back. If you back out for a reason not covered by a contingency, the seller may be entitled to keep the earnest money as compensation for taking the home off the market. The amount of earnest money varies by market and price point. In a competitive market, a larger deposit can strengthen your offer. The money is held in escrow by a title company, attorney, or the listing broker's trust account, never by the seller directly. Make sure you understand the contingency deadlines in your contract. Missing a deadline could put your earnest money at risk.
Bob's Advice
Redfin Senior Agent · AI Certified Agent
Earnest money is a tool to show the seller you are serious. In multiple-offer situations, a larger earnest money deposit can make your offer stand out even if your price is not the highest. I help my buyers decide on the right amount based on the situation. You should never risk more than you are comfortable with, but a strong deposit signals confidence. Let me guide you on the right amount for your specific offer.
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