Earnest money
Earnest money is the deposit a buyer places when a purchase agreement is signed. It demonstrates the offer is genuine, and it gives the seller something to look to if the buyer walks away without cause.
It is not a fee. At closing it is credited against what the buyer owes.
Where it sits#
With a neutral third party — a title company, a closing agent, or a brokerage trust account — under the terms of the purchase agreement.
Not with the seller. A seller holding the buyer's deposit directly is an irregular arrangement and a bad one for the buyer.
When it comes back#
This is the entire question, and it turns on contingencies.
Withdraw while a contingency is live and properly invoked — the inspection reveals a defect within the inspection period, financing is declined within the financing period, the appraisal comes in low with an appraisal contingency in place — and the deposit generally returns.
Withdraw after those windows have closed, or for a reason no contingency covers, and it generally does not.
The deposit is therefore a measure of how much a buyer is risking by waiving contingencies. A large deposit with no contingencies is a strong offer precisely because the buyer has put real money behind an unconditional promise.
Disputes#
The uncomfortable part.
A holder generally cannot release a disputed deposit without written agreement from both parties. If the buyer says the contingency was live and the seller says it lapsed, the money sits.
Resolution is negotiation, a contractual dispute process where one exists, or litigation — and on a typical residential deposit the cost of litigating exceeds the amount in dispute, which is what most disputes eventually turn on.
The practical defence is documentation. Invoke contingencies in writing, on time, with the notice the contract requires. A verbal conversation with an agent is not a notice.
Timing details that matter#
Two things catch buyers.
Delivery deadlines. The contract states when the deposit must be delivered, and failing to deliver on time can itself be a breach.
Notice deadlines. Contingencies expire by the calendar. A defect discovered on day eleven of a ten-day inspection period is a defect the buyer now owns.
Both are avoidable by writing every date from the contract onto a calendar the day it is signed.
In distressed transactions#
Bank-owned and estate sales frequently require larger deposits, on shorter timelines, with fewer contingencies and stricter default terms.
Those addenda override the standard form, and they are written by the seller's counsel. Reading the addendum rather than the familiar base contract is the whole job on that kind of purchase.