How does the Earnest Money Deposit Work?

If you’re buying a home in Florida, one of the first financial steps after putting in an offer on a home is providing a security deposit, often called earnest money. This deposit shows the seller that you’re serious about purchasing the property and ready to move forward in good faith.

• But what exactly happens to that money?

• How much should you expect to pay?

• And what if you back out of the deal?

Let’s walk through what the deposit means so you know what to expect:

What Is a Security (Earnest Money) Deposit?

Once you put in an offer and the seller accepts, you typically include an earnest money deposit to show your commitment. It’s not an extra cost. Instead, it’s part of your total purchase price, credited to you at closing.

This deposit is usually 1 to 3 percent of the purchase price, though the amount can vary depending on the market and your individual situation. I can help you determine an amount that feels comfortable based on what you have available to pay in cash upfront and what i'm seeing in the market at that time.

Where Does the Deposit Go?

After your offer is accepted, the deposit is placed into an escrow account held by a neutral third party such as a title company, real estate brokerage, or attorney. The escrow holder’s role is to keep those funds safe until the transaction closes or the contract is terminated.

The escrow agent must handle the deposit in compliance with Florida law. They cannot release the money without written consent from both the buyer and seller or a formal legal resolution.

How Long Do You Have to Deposit Earnest Money?

Once your offer has been accepted, you typically have a short window of time to deliver your deposit, and this timeline is outlined in your purchase contract.

In most Florida contracts, the earnest money must be deposited within three business days after the effective date (the day both parties have signed and accepted all terms of the agreement). Some contracts may specify a shorter or longer period, depending on what’s negotiated between the buyer and seller.

It’s important to meet this deadline, since a late deposit could put you in default under the contract terms. If you’re wiring funds, make sure you verify instructions directly with your title company or broker to avoid any delays or wire fraud risks.

What Happens If You Move Forward and Close?

If everything goes smoothly and the sale closes, your earnest money is applied directly toward your down payment or closing costs. It’s essentially money you’ve already set aside for your purchase, held in trust until the day you receive your keys.

Think of it as your first step toward homeownership, showing both financial readiness and good faith in completing the transaction.

What Happens If You Back Out?

If you decide not to move forward, what happens to your deposit depends on when you cancel.

You typically have an inspection period, often 10 to 15 days to complete any home inspections and due diligence. If you cancel the contract during that time, you can receive your deposit back in full, as long as you notify the seller in writing before the inspection deadline expires.

However, if you cancel after the inspection period or fail to meet a contractual obligation, the seller may be entitled to keep your deposit as liquidated damages. This means the seller accepts the deposit instead of pursuing further legal action for losses.

What If the Deal Falls Apart for Other Reasons?

Sometimes, circumstances change through no fault of either party. For example:

• The appraisal comes in below the purchase price, and financing cannot be approved

• A title issue is discovered that the seller cannot resolve

• The seller fails to meet contract terms or refuses to close

In these situations, what happens to the deposit will depend on the specific terms in your contract and the cause of the cancellation. This is where a knowledgeable agent and title company become essential as they can help you interpret the contract and protect your interests.

What If There’s a Dispute?

If both sides cannot agree on who should receive the deposit, the escrow agent must hold the funds until the dispute is resolved. Under Florida law, this process can involve mediation, arbitration, or a court ruling.

Your contract provides detailed steps for resolving these disputes, ensuring that the money is handled legally and fairly.

Final Thoughts

Your earnest money deposit is a key part of the homebuying process in Florida. It represents trust, commitment, and your intent to follow through on the purchase. When handled properly and with clear communication, it protects both you and the seller throughout the transaction.

Understanding how your deposit works gives you peace of mind and helps you move through the process with confidence getting you one step closer to the moment you call your new home your own.

This information is based on the use of the Florida Realtors/Florida Bar (FAR/BAR) “As Is” Residential Contract for Sale and Purchase. To learn more about the FAR/BAR contract, visit Florida Realtors’ official resources.