Let's Talk About Earnest Money

When you want to buy a home for sale in Lakewood or Long Beach, you’ll have to come up with an earnest money deposit.

But what is earnest money, and what happens to it when you close on a home?

What is Earnest Money?

Earnest money is money of your own that you put down to show a seller you’re serious about buying his or her home. You don’t give it to the seller - you give a check to your real estate agent, who then puts it in escrow.

It’s a way of putting your money where your mouth is. It shows the seller that you’re serious about buying the home so that he or she can confidently take it off the market and sign a purchase agreement with you.

What Happens to Earnest Money?

If everything goes well and you end up completing the real estate transaction, your earnest money deposit goes toward your down payment and closing costs.

If you end up backing out of the transaction, you could lose your deposit.

When Can You Keep Your Earnest Money?

When you close the transaction by buying the home, there’s no question - you’ll keep your earnest money deposit. (Well, it goes toward your down payment and closing costs, but it’s still yours.)

However, if you back out of the deal without a valid reason, you risk losing it. Invalid reasons are any reasons not outlined as contingencies in your purchase contract.


Contingencies are circumstances that must be met to complete the deal.

Most real estate contracts include financing and home inspection contingencies, as well as a few others. A financing contingency says that if you can’t obtain financing to buy the home, the deal’s off - and you get to keep your deposit. A home inspection contingency lets you off the hook if the home inspector uncovers something you just can’t live with.

When Do You Lose Your Earnest Money?

When you back out of the deal because you got cold feet - or for any reason not outlined in your purchase contract as a contingency - you risk losing your deposit. You forfeit it to the seller, who then has to re-list his or her home.

Are You Buying a Home in Lakewood or Long Beach?

If you’re buying a home in Lakewood or Long Beach, we can help. Call us at 562-882-1581. Tell us what you want from your next home and we’ll start searching for it right away. 

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