What Is Earnest Money, When Is It Due, and How Do Contingencies Protect You?

Once an offer is accepted, one of the first things a buyer will hear about is earnest money. Earnest money is a good faith deposit that shows the seller you are serious about moving forward with the purchase. The funds are held in escrow and later applied toward your down payment or closing costs.

In most cases, earnest money is due within 3 business days after acceptance, unless the contract says otherwise. That is why once escrow opens, timing matters and buyers need to be ready to send the deposit promptly.

What helps protect buyers during this period are contingencies. Contingencies are built into the contract to give buyers time to fully investigate the property and move through the next steps before becoming fully committed.

The main contingencies buyers should know are:

Inspection contingency
This gives you time to investigate the condition of the property. That can include the home inspection, termite report, roof, plumbing, electrical, pool equipment, and other items that may come up during escrow.

Appraisal contingency
If the property appraises below the agreed purchase price, this contingency gives the buyer time to renegotiate, decide whether to bring in additional cash, or cancel the contract.

Loan contingency
This protects the buyer in case financing is not fully approved within the agreed timeframe. Even with pre-approval, the loan still needs to go through the lender’s full process.

Title and disclosure contingency
This gives the buyer time to review the preliminary title report, seller disclosures, and any other important documents related to the property.

One of the most important things for buyers to understand is that these contingencies are removed in writing. You sign off on each contingency along the way. That means you are not just handed a stack of documents and expected to hope for the best. You are given stages throughout the escrow process to review the property, the financing, and the paperwork before removing each protection.

Earnest money shows commitment to the purchase, but contingencies are what help protect you. They give you the opportunity to do your homework, understand what you are buying, and move forward with confidence.