- When it comes to earnest money, it is typically due within 1-3 business days after your offer is accepted.
- Under “time is of the essence” clauses, deposit deadlines are legally binding.
- Always ensure that funds are paid to a neutral third party such as escrow, title, or an attorney.
- Missing the earnest money deadline could result in the seller canceling the contract.
Once your offer is accepted, the earnest money deposit is usually your first financial commitment in the homebuying process.
According to Courtney King, Senior Manager of designated brokers at Redfin, “Earnest money is a good faith deposit that you pay soon after a seller has accepted your offer on a home. It signifies your intention to purchase the property and demonstrates your commitment to the deal. It also serves as a form of protection in case you breach the contract, allowing the seller to potentially retain the earnest money.”
Unlike the down payment and other closing costs, earnest money is paid earlier, typically within 1-3 business days after the seller signs the purchase agreement.
To solidify your seriousness as a buyer, it is recommended to sign the contract with earnest money in hand. However, there are additional steps involved in the real estate transaction process.
In this article:
When do you pay earnest money?
How is earnest money paid and who gets it?
What happens if earnest money isn’t paid on time?
Tips for meeting your earnest money due date
FAQs
At what point do you pay earnest money?
Earnest money is typically due shortly after your offer is accepted, with a standard payment window of 1-3 business days. The specific deadline will be outlined in your contract, emphasizing the importance of clarity regarding the terms, such as whether days refer to business days or calendar days and if there is a cut-off time on the final day for payment.
The usual timeline for earnest money payment is as follows:
- Offer accepted (day 0): The contractual clock begins ticking.
- Earnest money due (1-3 business days): The buyer submits the deposit, ideally to a neutral third party like an escrow agent.
- Escrow deposit confirmed (1-2 business days): The funds are verified, initiating the inspection and contingency period.
Contractual language is critical: If the purchase agreement specifies “within three business days of acceptance,” weekends and holidays are typically excluded. However, it is essential to double-check how your state or brokerage defines business days. Once the deposit is received and confirmed, your transaction officially progresses into inspections, appraisals, and financing.
In certain regions, like North Carolina, South Carolina, or Texas, a nonrefundable due diligence fee or option fee may be required instead of or in addition to earnest money; consult your agent to understand the regulations applicable to your area.
How is earnest money paid and who receives it?
In addition to the timing of earnest money payment, your contract will detail the location to send the earnest money and the method of payment. In most cases, the deposit should be delivered to a neutral third party like a title company, escrow agent, or attorney, as this is the most effective way to safeguard your earnest money without conflicts of interest, as per King.
Payment Methods for earnest money
A wire transfer is the preferred and secure method for depositing funds into an escrow account, where the money is securely held until the closing. A cashier’s check or certified check may be accepted if hand-delivered to the third-party fund holder.
It is crucial never to pay earnest money directly to the seller to protect both parties from fraud, misdirected payments, and legal disputes if a refund is necessary.
Always verify payment instructions directly with your agent or escrow officer before transferring funds. Wire fraud targeting real estate transactions is a legitimate concern, so ensure to double-check details via phone using a verified number or in person before initiating the transfer.
Recipient of the earnest money deposit?
The escrow holder (as specified in your contract) is responsible for managing the earnest money deposit. They will confirm receipt of the funds, provide relevant documentation, and hold the money until one of two scenarios occurs:
- You complete the home purchase: The earnest money deposit is applied to your down payment or closing costs.
- The contract is terminated: The funds are disbursed based on the terms of your purchase agreement—usually refunded to the buyer if cancellation occurs under a contingency, or retained by the seller if the contract terms are breached.
Consequences of missing the earnest money due date
Most real estate contracts incorporate a “time is of the essence” provision, making deadlines legally binding.
“Once you’ve signed the contract, you are obligated to fulfill your responsibilities as a buyer,” King emphasizes. “Meeting those deadlines is crucial.” It is vital to understand the deadlines clearly, as missing the earnest money payment deadline could lead to various outcomes.
- The seller may cancel the contract: In many transactions, the agreement only becomes fully effective once the earnest money is paid. Failing to meet the deadline allows the seller to proceed with another buyer without repercussions.
- Your credibility as a buyer could be compromised: Even if the seller does not cancel the contract, missing the payment deadline may portray you as an unreliable buyer, potentially straining the transaction and impacting negotiations later on.
- Home purchase may be delayed: Without the earnest money deposit, the escrow process cannot commence officially, potentially causing delays in inspections, appraisals, or other deadlines tied to the starting date.
Key takeaway: Ensure you meet your earnest money due date
Missing the deadline for earnest money, even unintentionally, can have significant repercussions. To stay on course with your homebuying journey, it is essential to kickstart the process by:
- Having funds prepared in advance. Before submitting an offer, ensure your earnest money amount is readily available, not tied up in an investment account or slow-to-transfer savings.
- Verifying the exact due date before signing. Request your agent to highlight the deposit clause in your contract. This will clarify the number of days you have and whether they are business days or calendar days.
- Planning around weekends and holidays. If your deadline falls on a Friday or before a holiday, initiate the transfer early to ensure your escrow holder receives it on time.
- Identifying the recipient of the payment. The safest destination for funds is the escrow or title company. Never wire money until you have validated the instructions directly with your agent or escrow officer.
- Obtaining written confirmation. Always request proof of receipt and deposit of your earnest money. This documentation will shield you if any queries arise later and serve as validation to proceed with the due diligence process.
Adhering to deadlines, verifying details, and ensuring your earnest money is handled correctly will propel you closer to owning your new home.
FAQs: When is earnest money due
Can I pay earnest money at the same time I submit my offer?
Typically, earnest money is paid post-acceptance of your offer. Do not transfer funds until a signed agreement is in place and verified payment instructions from the escrow holder are received. In competitive markets, some buyers deposit the money immediately upon acceptance or provide proof of funds upfront to strengthen their offer.
What happens if the earnest money deadline falls on a weekend or holiday?
Most contracts operate on business days, excluding weekends and holidays from the deadline calculation. For instance, if your contract stipulates “within three business days” and your offer is accepted on a Thursday, your earnest money would be due by the following Tuesday (assuming no holidays occur in between). Always refer to your agreement to determine how “days” are defined in your transaction.
Is earnest money paid before or after the inspection?
Typically, earnest money is paid before the inspection period commences. Once the deposit is received, the inspection and contingency timelines officially commence. Earnest money deposits often kickstart the remainder of the homebuying process—deposit first, followed by inspections, appraisal, and closing.