What Is Earnest Money? Is It Refundable?

In Texas, earnest money is negotiated as part of your offer. It is an amount of money that shows the seller that you’re a serious buyer!

Typically, earnest money is 1% of the sales price of the home, and it is delivered to the title company within 3 days of going under contract. If you want to make your offer stand out in a multiple offer situation, you might offer a higher earnest money amount. There are also times when a lower amount is appropriate. Talk to your Realtor® about your specific case.

If you close on the house, the earnest money is credited to the sale (reducing your cash to close). If you as a buyer take an allowable “out” of the contract, your earnest money will be returned to you. If you default, the seller could be entitled to your earnest money.

No buyer intends to default! But it does happen.

The most common ways buyers default are:

• Choosing to terminate outside of the option period – maybe they got cold feet or got an unexpected job transfer

• Financing falls through outside of the financing contingency

• During the pandemic home buying frenzy, many buyers waived their appraisal contingency in order to compete and then they defaulted when they didn’t have the cash to cover the gap between the purchase price and the appraisal price.

Long story short: Earnest money should be enough to show the seller that you “have some skin in the game” and are serious about purchasing the home. However, it shouldn’t be so much that you can’t recover if something unforeseen arises and you are forced to default on the contract.