An Earnest Money Agreement Keeps Your Affairs Earnest

Standardized Legal Documents An Earnest Money Agreement Keeps Your Affairs Earnest

Being Earnest With an Earnest Money Agreement

Buying a house is a huge step in a person’s life. It involves creating various legal documents, which boosts stress levels. If you are not sure how to write a contract or why you need an earnest money agreement during the house purchase process, we’ll clarify everything. With DoNotPay, you can create numerous personalized legal documents. Let’s learn how!

What Is an Earnest Money Deposit Agreement?

A seller of a property needs to be sure a buyer is genuinely interested. This is why both parties agree to make a legally binding document called an earnest money agreement, mandating the buyer to pay a certain amount of money to guarantee he/she will sign the contract. It is also called:

  • Earnest money contract
  • Earnest money deposit
  • Earnest payment

Renters who want to show their prospective landlords they are serious about moving in can also use it.


A buyer usually pays at least 1% of the purchase price as an earnest money deposit, but sometimes the rates can reach 2%–3%. The factors influencing the amount are:

  • The current state of the real estate market—If houses sell quickly, the amount of the earnest money deposit is higher
  • Property value—The more expensive a property is, the higher the amount will be for an earnest deposit, ensuring the seller that the buyer is serious about the purchase
  • The number of buyers that placed a bid on the property—The one that offers the highest amount of earnest money might seal the deal

Typically, an earnest money deposit agreement should include the:

  1. Names of the buyer and the seller
  2. Amount of the earnest money deposit
  3. Sale price
  4. Maximum duration of the sale process

Are There Different Types of Earnest Money Deposits?

There are two types of earnest money deposits:

  • Penalty 
  • Confirmatory

A penalty earnest money deposit defines the consequences in case of an agreement breach. A confirmatory one lowers the amount you need to pay at the closing of the deal because it counts as the initial prepayment. 

What Is the Difference Between an Earnest Money Deposit and Down Payment?

Although often confused, these two terms are not the same. A down payment is the amount of money a buyer gives directly to the seller once the agreement is reached. It can range from 5%–20% of the total price. The rest of the property’s price comes from the mortgage.

An earnest money deposit ranges from 1%–3%, and a buyer uses it to show intent to purchase a property. A buyer usually puts the earnest money deposit into an escrow, a third party responsible for holding the money until the agreement reaches the final stage.

How To Protect My Earnest Money?

To ensure your earnest money deposit is secure, follow these steps:

  1. Use an escrow account
  2. Know the contingencies
  3. Meet the deadlines
  4. Put everything in writing

Use an Escrow Account

Giving an earnest money deposit directly to the seller or real estate agent can be dangerous. Always give your money to a third party that will hold it until the closing of the deal. Pay by check or using a wire transfer, and the escrow company will ensure you are not cheated.

Know the Contingencies

Contingencies are specific requirements necessary for closing the deal.

The most common are:

  1. Home inspection—A professional inspects the house thoroughly
  2. Appraisal—A third-party professional called an appraiser determines the fair market value of the property
  3. Financing—The buyer should have a preapproved mortgage proving the seller he/she can honor the deal

Meet the Deadlines 

There is a timeline for every aspect of the purchasing process. If you miss the deadlines, the seller can back out of the deal, and you may lose your earnest money. Plan your activities wisely!

Put Everything in Writing

If you put everything in writing, you will leave no room for misunderstandings. You should state clearly in the agreement who gets the earnest money deposit if there is a dispute or the contract gets canceled.

Let DoNotPay Generate Legal Documents For You

Searching for contract templates online is a free but unreliable option, while lawyers are convenient but rather pricey. 

Your best and cheapest option is DoNotPay! We’ll help you create an agreement in a few clicks. All you need to do is:

  1. Open DoNotPay using a web browser
  2. Enter the name of the document you want to create
  3. Give the necessary details to our chatbot

DoNotPay will use the information you provided and generate a tailored document. Don’t forget to sign or notarize it to make it official.

Our database has numerous legal documents to offer, and we are working hard to prepare more. Currently, we can help with the following agreements:

Business  Real Estate Other usages

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