What an earnest money deposit is
and where it sits until closing
The earnest money deposit is the good-faith money a buyer submits with an offer. It goes into escrow rather than to the seller, and at settlement it usually comes back as part of the closing costs or the down payment.
- The earnest money deposit is good-faith money submitted with a purchase offer to show the seller the buyer is serious about the contract
- It is held in escrow, a neutral account, and is usually applied toward the buyer's closing costs or down payment at settlement rather than being an extra cost
- What happens to the deposit if the deal does not close is negotiated in the contract, not fixed in advance
Explainer. Written by The JK Realty Group.
An earnest money deposit is the good-faith money a buyer puts up along with a purchase offer. Its job is to tell the seller the offer is real. A seller taking a house off the market is giving up other buyers for the length of the contract, and the deposit is the buyer's way of saying that is a reasonable thing to do. Buyers often assume it is money spent on top of everything else. In most cases it is not. At settlement the deposit is generally applied toward the buyer's closing costs or the down payment, which makes it money moved forward rather than an added expense.
Where it sits matters as much as what it is. The deposit goes into escrow, a neutral account held by a licensed broker or an attorney, not into the seller's hands. In New Jersey, brokers work under specific Real Estate Commission obligations covering how escrow money is received, held and paid out, and escrow funds do not move on one side's say so. That is the point of the arrangement: the money is out of reach of both parties while the deal is still being worked out.
The part buyers ask about most is what happens if the sale does not close. The honest answer is that it depends on the contract, because the terms governing the deposit are negotiated rather than set by a rule. In New Jersey those terms tend to be shaped early, during the attorney review period and around whatever contingencies the contract carries. Two offers on the same street can carry different deposit terms. What your own contract says about your deposit, including when it is released and to whom, is a question for a licensed New Jersey attorney, and it is worth asking before you sign rather than after something goes sideways.
There is no standard amount. Deposit size gets negotiated along with the price and the rest of the terms, and what makes sense moves with the market, the price range, and what the particular seller is weighing. A larger deposit is one of the ways an offer signals commitment, in the same family as the closing date and the contingencies, and it is not always the thing that decides an outcome. It also has to work with the rest of your cash, since the deposit goes out early and the balance of your funds is still due at the table.
What to ask, and who answers it. Your agent can tell you how deposits are running in the town and price range you are shopping, and whether the size of yours is likely to matter in a particular situation. A licensed New Jersey attorney is the one who reads your contract and tells you what its deposit terms mean for you. Your lender is who confirms how the deposit fits against your cash to close, so nothing is short at settlement. Nothing on this page is advice about any specific transaction.
Our take
The deposit does two jobs: it tells the seller the offer is real, and at settlement it generally comes back as part of what you owe. If you are writing an offer in South Jersey, its terms are something to negotiate, not a fee.
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General information on how the process runs. What your own contract says about your deposit is a question for a licensed New Jersey attorney. General information, not advice about any specific property. The JK Realty Group, brokered with OMNI Real Estate Professionals. Equal Housing Opportunity. See our Terms of Use for how we source and credit these posts.