A Homebuyer’s Guide To Earnest Money

Dusty Rhodes • April 10, 2023

Earnest money may not be the most well-known component of a home purchase, but it’s nonetheless an important one. The aptly named “good faith” payment is an important reminder that the real estate industry is not immune to negligence or malicious activity. More importantly, however, it provides a relative system of checks and balances which attempts to hold buyers and sellers to their word. Though small, a good faith deposit carries large implications, which begs the question: What is earnest money? Better yet, how can buyers navigate their own earnest money deposits and protect their financial interests?

What Is Earnest Money?

Earnest money is a deposit made on behalf of prospective homebuyers to express their sincerity in following through with a purchase. Otherwise known as a good faith deposit, earnest money is essentially a safety measure put in place to protect sellers after each side of a real estate transaction enters into a purchase agreement. If for nothing else, the seller needs some reassurance that the buyer will follow through with the purchase. In return for taking the home off the market (and risking a financial hit), the buyer will provide an earnest money payment which is typically equal to 1% – 3% of the sale price. As a deposit, the payment is held in an escrow account until the deal is complete. Upon closing the deal, the seller will return the cash to the buyer. If the deal falls through, the seller is entitled to keep the money if the previously agreed upon criteria are met.

How Earnest Money works

More often than not, the cash is delivered to sellers when the impending buyer signs a purchase agreement. At that time, the seller will pull the home off the market and take on financial risk, so it’s only fair that that buyer puts some “skin in the game.” That said, there’s no reason prospective buyers couldn’t include the funds with their initial offer. In a market as competitive as today’s, the addition of cash with an offer could go a long way in beating out the competition. Those considering including a good faith payment with the offer to make it look more attractive will want to put up enough money to seem serious, but not so much as to put excess capital at risk.

Including an earnest money deposit with an offer will show sincerity, but it can also be a bit premature. If for nothing else, the seller will typically want to be included in the negotiations, which set the terms of the good faith payment. As a result, terms are usually discussed at the time the purchase agreement is signed. The terms will determine how much of a good faith payment will be deposited and the terms which will unlock it from escrow. Terms will include contingencies that allow the buyer to get the money back if they don’t buy the home. For example, a buyer may receive their deposit back if the home doesn’t pass inspection.

Once the seller receives the deposit, the earnest money is transferred into an escrow account, where it is held until the criteria which unlock it is met. Since the purchase agreement is contingent on several things, it does not obligate the buyer to follow through with a purchase. Still, the contract will require the owner to take the home off the market while it’s appraised and inspected. The owner may be losing out on subsequent offers in that time, so the earnest money serves as a bit of a safety net.

If the buyer pulls out of a transaction, the seller will most likely be able to keep the cash. There are extenuating circumstances that will enable the buyer to recoup their deposit, but those terms are unique to each contract. If the buyer can follow through with the transaction, the cash may be applied to the down payment and closing costs.

Example Of Earnest Money

Let’s say, for example, Louise has finally saved up enough money to place a down payment on her first house, and she’s ready to make the leap to homeownership. Over the course of looking for a house, she stumbles across the perfect property in a neighborhood she has always dreamed of living in. At $100,000, the house is within her budget, so Louise decides to make an offer. Thanks to a well-written offer letter, the homeowner agrees to sell to Louise and enters into a purchase agreement.

When the agreement is signed, the owner is required to take the home off the market so it may be inspected and appraised. Louise agrees to negotiate an earnest money deposit in return for the financial risk being placed on the homeowner by taking their home off the market.

The negotiations require Louise to pay an earnest money deposit of 1.0% (or $1,000). The terms also state that Louise will get her money back if the deal falls through because of a failed inspection or the appraisal brings up some red flags. Finally, the homeowner will keep the deposit if Louise doesn’t follow through on the purchase.

With the terms set, Louise pays the earnest money deposit with a wire transfer directly into an escrow account that is held by the real estate brokerage dealing with the transaction. The money will sit in the escrow account until the agreed-upon terms unlock it. Fortunately for Louise’s sake, the home passed inspection, and the appraisal was what she expected. Louise closed the deal when all was said and done and applied the money to the closing costs she incurred. In the end, Louise got the house she always wanted, and the seller got the peace of mind they needed.

How Much Earnest Money Is Enough?

To be clear, there’s no universal rule for exactly how much to offer as an earnest money deposit. Instead, the amount of cash prospective buyers should offer is directly correlated to the current state of the real estate market. A slow market without much competition, for example, poses less of a risk to sellers who take their homes off the market when a purchase agreement is signed. As a result, the earnest money won’t need to be a significant amount. On the other hand, a competitive market implies the seller will miss out on multiple offers when they take their home off the market. Therefore, it’s only fair that the deposit is increased in active markets. While most earnest money deposits will rest somewhere in the neighborhood of 1% – 3% of the sale price, it’s entirely possible the amount increases in more competitive markets.

Does Earnest Money Get Refunded?

Earnest money may be refunded to a buyer when agreed upon contingencies are met. With that in mind, here’s a list of the most common reasons earnest money may be refunded:

Home Inspection Contingency: Cash may be refunded to the buyer if the contract includes a home inspection contingency and the subject property fails the inspection. If for whatever reason, the inspection is to blame for the buyer backing out of the deal, the home inspection contingency may result in a refund of the earnest money.
Appraisal Contingency: An appraisal contingency helps protect buyers from homes which are overvalued. Therefore, if an appraisal comes in well below the sales price, the buyer may withdraw from the purchase and receive their earnest money in full.
Financing Contingency: In the event a buyer never receives approval for financing, a financing contingency may allow them to get their earnest money deposit back when they pull out of a deal.
Existing Home Contingency: Some contingencies are subject to the sale of an existing home. This particular contingency states that a buyer may back out of a deal if their current home does not sell, depriving them of the funds necessary to make a subsequent purchase. If that’s the case, the buyer may also get their earnest money back.

Can A Seller Keep Earnest Money?

A seller may keep earnest money if any of the terms in the purchase agreement are broken. More specifically, however, the purchase agreement will outline the terms of the earnest money deposit. As a signed agreement, the prospective buyer is obligated to follow the terms which were agreed upon by each party. Therefore, if the buyer breaks any of the terms they agreed to adhere to, the seller is entitled to the deposit. If, for example, the buyer pulls out of a deal for no reason at all, the seller can keep the earnest money they are owed (as long as the terms say as much).

How To Protect Your Earnest Money

Protecting earnest money has more to do with following the terms of a purchase agreement than anything else. It is the terms of the agreement which will serve as the basis of protection. With that in mind, however, the best way to protect your money is to write up an air-tight contract that gives buyers the greatest odds to recoup their money in the event unexpected circumstances occur.

Contracts aren’t going to write themselves, which means buyers need to know what to include. Here’s a list of the steps buyers can take to protect their earnest money deposits:

Put the money in an escrow account
Include contingencies in the purchase agreement
Follow the terms of the purchase agreement
Make sure everything is in writing

1. Use An Escrow Account

Every purchase agreement should include a detailed account of where earnest money will be held. While most earnest money deposits are held in an escrow account, it is possible to hold it with a title company or legal firm. Nonetheless, any good faith money must go through an account controlled by an unbiased third party. The real estate market isn’t immune to fraud, and enlisting the services of a third-party account will go a long way in securing each party’s capital.

Typically, the buyer will pay by one of three methods: certified check, wire transfer, or personal check. Whichever method is used, the payment should be made out to the third-party account; that way, they can distribute the funds whichever way the purchase agreement dictates.

2. Understand Your Contingencies

Protecting earnest money starts and ends with the purchase agreement. However, it’s not enough to understand the terms agreed upon. Buyers need to negotiate for the terms they want to see in the purchase contract. Of course, that starts with knowing what contingencies may be included in a purchase agreement. Therefore, buyers will want to research all of the contingencies that give them the best odds of getting their money back and try their best to get them into the contract.

In addition to adding contingencies, buyers need to understand exactly what they mean. Only when a buyer is fully aware of what each contingency requires will they be able to truly protect their deposit. It isn’t until a buyer knows how to meet their obligations that they’ll be able to tilt the odds in their favor.

3. Don’t Miss Your Deadlines

A large part of protecting an earnest money deposit has to do with adhering to deadlines. Buyers who do what they say within the allotted time frame and follow the terms of the purchase agreement are the only ones who stand a chance of getting their money back. Therefore, work within the rules of the contract and do not miss deadlines if you ever want to see your earnest money again.

4. Put Everything In Writing

Again, it all comes down to the purchase agreement. The purchase agreement represents a contract between buyers and sellers and outlines exactly how the earnest money will be dealt with. As such, everything buyers and sellers negotiate pertaining to the good faith payment will need to be included in the purchase agreement. Anything left off the agreement means nothing, so do not simply “shake on it” or take anyone for their word.

Summary

What is earnest money, if not for a promise on behalf of buyers that they intend to see the purchase of a home through to the end? Of course, in its simplest form, earnest money is essentially a down payment that divulges a buyer’s intentions. However, at its pinnacle, an earnest money deposit is a contract between two parties that facilitates honest transactions. When terms are followed, earnest money can simultaneously help buyers in a competitive market and give sellers the peace of mind they need to accept an offer.

Source: Keeping Current Matters

Dusty Rhodes Properties is the Best Realtor in Myrtle Beach! We do everything in our power to help you find the home of your dreams. With experience, expertise, and passion, we are the perfect partner for you in Myrtle Beach, South Carolina. We love what we do and it shows. With more than 22 years of experience in the field, we know our industry like the back of our hands. There’s no challenge too big or too small, and we dedicate our utmost energy to every project we take on. We search thousands of the active and new listings from Aynor, Carolina Forest, Conway, Garden City Beach, Longs, Loris, Murrells Inlet, Myrtle Beach, North Myrtle Beach, Pawleys Island, and Surfside Beach real estate listings to find the hottest deals just for you!

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Maximizing Storage in a Two-Bedroom Apartment

By Dusty Rhodes • September 15, 2025

Moving into a two-bedroom apartment often feels like a big upgrade. There’s an extra room, maybe more closet space, maybe even a balcony. But before long, that extra square footage starts to disappear. Boxes stack up, closets overflow, and the second bedroom turns into a catch-all. The truth is, space isn’t just about how much you have. It’s about how well you use it. Why Extra Rooms Fill Up So Quickly Two bedrooms can create a false sense of abundance. One room is for sleeping, the other is supposed to be flexible: an office, a guest room, or storage. But once daily life settles in, that second space often becomes a little of everything and a lot of nothing. A bed covered in laundry, a desk buried under papers, a closet that won’t close. Sound familiar? The challenge isn’t only fitting more in. It’s making sure the things you own feel organized and intentional. Furniture That Works Beyond Its Job One of the most effective ways to save space is to look at furniture differently. A coffee table with a hidden compartment. A bed frame with drawers underneath. A bench at the entryway that opens to store shoes. These aren’t just stylish pieces; they’re practical solutions. Retailers from IKEA to West Elm offer versions that balance design with function. When you think about it, every piece of furniture is either working for you or taking up space. Choosing the right pieces can make the difference between clutter and comfort. Some apartments are already designed to make storage easier. For example, look at these two bedroom apartments in Denver Colorado from Station A. The layouts include open kitchens and spacious bedrooms that give you a little extra breathing room before you even add furniture. Use the Walls, Not Just the Floor Floors fill up fast, but walls often sit empty. Floating shelves, wall-mounted racks, and hooks behind doors all free up ground-level space. Even the space above a doorway can hold a slim shelf for books or baskets. Tall furniture also helps. A floor-to-ceiling bookcase, for example, not only adds storage but also draws the eye upward, giving the room a sense of height and airiness. Making Closets Work Harder Closets look spacious when empty, but once coats, shoes, and bags pile in, they quickly feel cramped. The key is layering. Hanging organizers, stackable bins, and slim shoe racks create levels where there was only one. Vacuum-sealed bags for out-of-season clothing can cut bulky items down to a fraction of their size. Opening a closet and finding everything in its place may sound small, but it changes how you feel about the whole apartment. Hidden Spots You Might Miss Every apartment has underused corners. The space under a sofa, the gap above the kitchen cabinets, the wall space beside a fridge, or even the narrow strip between the washer and dryer. With the right bins, baskets, or rolling carts, these forgotten areas can become useful without making your home look crowded. A Quick Word on Digital Storage Storage isn’t always physical. Old laptops, stacks of paper, and tangled cords take up room just like bulky furniture does. Moving documents online, consolidating devices, and recycling outdated electronics can free up real space while cutting visual clutter. Rotate with the Seasons One of the simplest tricks is seasonal rotation. Think of your apartment like a store changing its displays. Keep only what you need right now in easy reach. In summer, pack away heavy blankets and coats. In winter, box up patio cushions and fans. This way, storage works on a cycle instead of becoming permanent clutter. Keeping Only What You Use It may seem contradictory to talk about maximizing storage and also suggest owning less, but the two go hand in hand. The fewer unnecessary items you keep, the more room you have for what matters. A helpful guideline is the “one-year rule.” If you haven’t used it in a year, it probably doesn’t need to take up space in your apartment. Letting go of items can be surprisingly freeing. That rarely used kitchen gadget, the stack of magazines you meant to read, or the exercise gear gathering dust—they’re not making your apartment feel larger. They’re weighing it down. Final Thoughts Maximizing storage in a two-bedroom apartment isn’t about cramming more into closets or stacking boxes in corners. It’s about making choices that let your home feel organized and functional. Furniture that doubles as storage, walls that carry some of the load, closets with actual systems, and a thoughtful rotation of seasonal items can make a noticeable difference. In the end, a well-organized space feels bigger, calmer, and easier to live in. And that might be the best use of your two bedrooms.

What Everyone’s Getting Wrong About the Rise in New Home Inventory

By Dusty Rhodes • September 2, 2025

You may have seen talk online that new home inventory is at its highest level since the crash. And if you lived through the crash back in 2008, seeing new construction is up again may feel a little scary. But here’s what you need to remember: a lot of what you see online is designed to get clicks. So, you may not be getting the full story. A closer look at the data and a little expert insight can change your perspective completely. Why This Isn’t Like 2008 While it’s true the number of new homes on the market hit its highest level since the crash, that’s not a reason to worry. That’s because new builds are just one piece of the puzzle. They don’t tell the full story of what’s happening today. To get the real picture of how much inventory we have and how it compares to the surplus we saw back then, you’ve got to look at both new homes and existing homes (homes that were lived in by a previous owner). When you combine those two numbers , it’s clear overall supply looks very different today than it did around the crash ( see graph below ):

Homebuilders Are Relying More on Buyer Incentives To Battle Sluggish Market

By Dusty Rhodes • August 25, 2025

omebuilder sentiment remained weak in August, with the use of incentives hitting a post-COVID high as builders struggled to lure reluctant buyers off the sidelines. In August, 66% of builders reported using sales incentives such as discounts or mortgage rate buydowns , up from 62% in July and the highest percentage in at least five years, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released Monday. The survey showed that 37% of builders reported cutting prices in August—little changed from 38% in July. The average price reduction was 5% this month, where it has held steady since November. Overall builder confidence in the market for newly built single-family homes was 32 in August, down one point from July. Anything below 50 reflects negative homebuilder sentiment about the market. “Affordability continues to be the top challenge for the housing market and buyers are waiting for mortgage rates to drop to move forward,” said NAHB Chairman Buddy Hughes . “Builders are also grappling with supply-side headwinds, including ongoing frustrations with regulatory policies connected to developing land and building homes.”