What is earnest money, and can you lose it?

Earnest money is a good faith deposit submitted with an accepted offer, typically one to three percent of the purchase price and higher in competitive markets. It is held by a neutral third party, usually a title company, escrow agent, or brokerage trust account, rather than by the seller, and at closing it is credited toward your down payment and closing costs. Its function is to give the seller something at risk in exchange for taking the property off the market.

Whether you can recover it depends entirely on the contingencies in your contract. Standard contingencies protect the deposit if you terminate for a specified reason within the specified window: a financing contingency if your loan is denied, an inspection contingency if the property has problems you will not accept, an appraisal contingency if the value comes in low, and sometimes a sale contingency tied to selling your current home. Exercise a contingency properly and on time and the deposit is returned. Miss the deadline, or waive the contingency to strengthen your offer, and the protection is gone.

Where buyers lose deposits is predictable. Waiving contingencies to compete and then encountering exactly the problem the waived contingency covered. Missing a deadline by a day, since these dates are strictly enforced. Or simply deciding not to proceed, which is a breach and typically forfeits the deposit, and in some contracts exposes you to further damages. Two protective habits: never deliver earnest money directly to a seller or an unverified account, since wire fraud targeting real estate closings is a large and active category of crime and instructions arriving by email should always be confirmed by phone to a number you looked up independently. And calendar every contingency deadline the day the contract is signed rather than relying on someone else to track them.