What Is Earnest Money and Who Holds It?

uying or selling a home in Ohio involves a lot of moving parts—and earnest money is one of the first. It signals commitment, protects both sides of the deal, and can mean real financial consequences if something goes wrong. Whether you're a first-time buyer, a seasoned investor, a real estate agent, or a loan officer, understanding how earnest money works helps you navigate every transaction with confidence. 

Here's what you'll learn in this article: 

• What earnest money is and why it matters 

• How much to offer and when to pay it 

• Who holds the funds and how they're protected 

• What happens at closing—and what happens if the deal falls apart 

 

What Is Earnest Money? 

Earnest money is a deposit a buyer makes shortly after a seller accepts their offer. It's sometimes called a "good faith deposit" because it shows the seller that the buyer is serious about following through. 

Think of it this way: a seller takes their home off the market when they accept an offer. That's a real risk. Earnest money compensates for that risk and gives the seller confidence that the buyer won't walk away without cause. 

Without it, sellers would have little protection against buyers who tie up a property for weeks and then back out on a whim. 

 

How Much Is Typically Offered—and When? 

There's no fixed amount required by law. In Ohio, earnest money deposits commonly range from 1% to 3% of the purchase price, though the amount can vary based on local market conditions, the property type, and negotiation between the parties. 

In competitive markets, buyers sometimes offer more to make their offer stand out. On a $300,000 home, a 2% earnest money deposit would be $6,000. 

Timing matters. Earnest money is typically paid within a few days of the purchase contract being signed—often two to five business days, though the contract will specify the exact deadline. Missing that window can put the deal at risk, so buyers should be ready to act quickly. 

 

Who Holds Earnest Money in a Real Estate Transaction? 

This is one of the most common questions buyers and sellers ask—and the answer matters. 

Earnest money is held by a neutral third party, not the seller. In Ohio real estate transactions, this is typically one of the following: 

• A licensed real estate brokerage (often the listing or buyer's agent's brokerage) 

• A title company like American Homeland Title Agency 

• An escrow agent designated in the purchase agreement 

• A real estate attorney, in some transactions 

The purchase contract specifies who will hold the funds. These funds are kept in a dedicated escrow or trust account—completely separate from the operating funds of whoever is holding them. This protects both the buyer and the seller while the transaction moves forward. 

Pro tip for agents and loan officers: Confirming who holds the earnest money and getting documentation early keeps your transaction clean and avoids delays at closing. 

 

How Is Earnest Money Protected? 

Proper escrow handling is what keeps earnest money safe. A reputable escrow holder—whether a title agency, brokerage, or attorney—maintains these funds in a segregated account and releases them only according to the terms of the purchase contract. 

As a buyer, you should always: 

• Get written confirmation that your deposit was received 

• Verify the funds are being held in an escrow or trust account 

• Review the contract terms carefully before signing 

Working with a licensed title agency or experienced real estate professionals adds an important layer of accountability to this process. 

 

What Happens to Earnest Money at Closing? 

When a real estate transaction closes successfully, earnest money doesn't disappear—it gets applied toward the buyer's costs. It typically goes toward: 

• The down payment 

• Closing costs 

• Or a combination of both 

Your closing disclosure will show exactly how your earnest money was applied. In most cases, it simply reduces the amount you need to bring to the closing table. 

 

When Is Earnest Money Refunded or Forfeited? 

This is where earnest money gets serious. What happens to the deposit when a deal falls apart depends on why it fell apart. 

Common situations where a buyer may receive a refund: 

• The home fails inspection and the buyer exercises an inspection contingency 

• The buyer cannot secure financing and a financing contingency is in place 

• The home appraises below the purchase price and an appraisal contingency applies 

• The seller fails to meet their obligations under the contract 

Common situations where earnest money may be forfeited: 

• The buyer backs out without a valid contingency 

• The buyer misses deadlines specified in the contract 

• The buyer simply changes their mind after contingencies have been waived or expired 

Contingencies are the buyer's safety net. Understanding them—and keeping track of their deadlines—is critical for buyers, agents, and loan officers alike. 

 

Work With Professionals You Can Trust 

Earnest money is more than a formality. It's a financial commitment that sets the tone for the entire transaction. Knowing who holds it, how it's protected, and what the contract says about refunds or forfeiture can save everyone involved a lot of stress—and money. 

At American Homeland Title Agency, we work with Ohio buyers, sellers, real estate agents, loan officers, and business owners to make sure every closing goes smoothly. From proper escrow handling to clear communication at the closing table, we're here to support your transaction every step of the way. 

Have questions about how earnest money fits into your next Ohio real estate deal? Reach out to our team—we're happy to help.