What Is Earnest Money, and Can I Get It Back?

The first check you write when you buy a house is not the down payment. It is the earnest money, and for most first-time buyers it is the first time a real amount of their money leaves their account for a house they do not own yet.

Here is what it is, where it goes, when you get it back, and when you do not.

Earnest money is a deposit you make when the seller accepts your offer. It shows the seller you are serious, which is where the name comes from, and it becomes part of your down payment and closing costs at the end. It is not an extra fee. It is your money, paid early, and if the deal closes it simply counts toward what you owe at closing.

On the offers I write it is typically about 1 percent of the purchase price, and it is negotiable. A larger deposit can make an offer stronger in a competitive situation. A smaller one can be fine when the seller has no other offers. It is one of the levers we decide on together before the offer goes in.

It does not go to the seller, to me, or to the seller's agent.

In Nevada the earnest money goes to a neutral third party, the escrow holder, which here is usually a title company. It sits in their trust account until closing or until the deal falls apart, and nobody touches it without the contract or both sides saying so. The contract sets a deadline for the deposit, usually one business day after the seller's acceptance to get it to the title company, and wiring it on time matters.

One warning that has nothing to do with the contract. Wire fraud targets earnest money, because it is a large transfer made by someone who has never done this before, on a deadline. Before you wire anything, call the title company at a number you looked up yourself, not one from an email, and confirm the instructions by voice. I say this to every buyer, and I will say it to you again on the day.

The earnest money comes back to you when you cancel the contract for a reason the contract allows, inside the window it allows. Those windows are the contingencies, and they are the whole reason I spend time on the offer instead of just the price.

The due diligence period. Usually ten days to two weeks on the offers I write, and negotiable. During it you inspect the house, read the seller's disclosures and the HOA package if there is one, and decide. If you cancel inside this window because of what you found, or because you changed your mind, the earnest money comes back.

The appraisal contingency. If the lender's appraisal comes in below the price and the sides cannot agree on how to close the gap, you can cancel and get the deposit back, as long as you kept this contingency in the offer. I wrote a whole piece on how the appraisal works.

The loan contingency. If your financing falls through for a reason that was not your doing, and you cancel inside the loan contingency, the deposit comes back.

Seller problems. If the seller cannot deliver clear title, or backs out, or fails to do what the contract requires, you get your earnest money back, and you may have other remedies too.

You lose the earnest money when you walk away for a reason the contract does not allow, or after the window for that reason has closed.

The common version: the due diligence period ends, you did not cancel, and a week later you decide you do not want the house after all. At that point the contingency that would have protected you is gone. The standard purchase contract here has a liquidated damages clause, and when both sides initial it, the seller's remedy for that kind of default is usually limited to keeping the earnest money. That is the trade the deposit represents. You are paying for the seller to take their house off the market for you, and if you do not follow through without a contract reason, the seller keeps the payment.

Missing a deadline can also cost you. If you waive the appraisal contingency to make the offer stronger and the appraisal comes in low, you are on the hook for the gap, and canceling over it puts the deposit at risk. That is why I tell you what each contingency protects before you decide which ones to keep.

Sometimes a buyer cancels and the seller says the reason was not allowed. The escrow holder does not referee. It holds the money until both sides sign a release agreeing where it goes, and if they cannot agree, the contract sends the dispute to mediation and then, if it comes to that, to court. Most of the time it does not come to that, because the contract is clear about what was allowed and when. The dates on the calendar are what settle it, which is why they are on a calendar.

Before the offer goes in, we decide the deposit amount, which contingencies you keep, and how long each one runs. Every deadline goes on a calendar you can see. During due diligence I tell you what the inspection found and what I would do about it, in time to act. If the appraisal comes in low, you know the same day and you know your options. If you need to cancel, you cancel in writing, inside the window, and the deposit comes back.

None of that is complicated. It is just attention to dates, and it is most of what protects the first real money you put into a house.

Call 702-881-6562 or email JArendt658@gmail.com. Tell me the house and the situation, and I will tell you what deposit I would offer, which contingencies I would keep, and why. First-time buyers get taught. This is one of the lessons.

John Arendt, Realtor, has sold homes across the Las Vegas valley for 20 years, in Henderson, Summerlin, Southern Highlands, Anthem, Boulder City and North Las Vegas.

This article is general information about earnest money in a Nevada home purchase, not legal advice. Your purchase contract controls your situation, and a real estate attorney can advise you on a dispute.