Deposit
Definition and meaning of Deposit in real estate.
A deposit, often referred to as earnest money, is a sum of money paid by a buyer to a seller upon signing a purchase agreement to demonstrate good faith and commitment to the transaction.
In more detail
This money is held in an escrow account by a neutral third party, such as a title company or real estate brokerage, until the transaction closes. The deposit amount typically ranges from one to three percent of the purchase price, depending on local market conditions.
If the transaction is completed, the deposit is applied toward the buyer's down payment or closing costs. If the buyer defaults on the contract, the seller may be entitled to keep the deposit as compensation, though contract contingencies often protect the buyer's funds if issues arise during inspections or financing.
Key facts
| Category | Buying & Selling |
|---|---|
| Also known as | Earnest money deposit |
| Typical amount | One to three percent of the purchase price |
| Where it is held | Neutral escrow or trust account |
A buyer submits a written offer to purchase a house and includes a check for a three percent deposit, which will be held in escrow until closing.
Frequently asked questions
Can a buyer get their deposit back if they back out?
Yes, if the buyer backs out due to a valid contract contingency, such as a failed inspection or financing disapproval, the deposit is typically refunded.
What happens to the deposit at closing?
At closing, the deposit is credited toward the buyer's required down payment or closing costs, reducing the total cash the buyer must bring to the table.
Who decides who gets the deposit in a dispute?
If a dispute arises, the escrow agent will hold the funds until the buyer and seller sign a release agreement, or until a court resolves the matter.