How Much Earnest Money to Put Down
Earnest money is the deposit you put down when you get a property under contract. It tells the seller you are serious. In wholesaling, it is also your primary financial risk. Understanding how much to put down, when it is refundable, and how to protect it is essential for every deal.
Typical earnest money amounts
Earnest money deposits in wholesale transactions are almost always lower than traditional home purchases. Here are the ranges you will encounter:
| Scenario | Typical EMD | Context |
|---|---|---|
| Direct-to-seller (distressed) | $100 - $500 | Motivated sellers care more about price and speed than deposit size |
| Direct-to-seller (light motivation) | $500 - $1,000 | More deposit shows seriousness when competition exists |
| Through a real estate agent | $1,000 - $5,000 | Agents advise sellers to demand higher deposits as a filter |
| REO / bank-owned | $1,000 - $5,000 | Banks have minimum deposit requirements, usually 1% of offer |
| Probate / estate sales | $500 - $2,000 | Executors want assurance but are often flexible |
| Traditional retail purchase | 1% - 3% of price | Standard for financed home purchases (not wholesale) |
For most wholesale deals sourced directly from sellers, $100 to $500 is perfectly acceptable. When you are new, starting with the smallest deposit possible minimizes your risk while you learn the process.
Where does earnest money go?
The earnest money deposit is held in escrow by a third party, typically the title company or a real estate attorney. It does not go directly to the seller. This protects both parties.
At closing, the earnest money is applied toward the purchase price. If you are assigning the contract, it is either returned to you or credited toward the transaction. If the deal falls through within the terms of the contract (option period, inspection contingency, financing contingency), you get it back.
Protecting your deposit: the option period
In Texas and many other states, the option period is your safety net. During this period (typically 7 to 14 days), you can terminate the contract for any reason and get your earnest money back. You only lose the option fee, which is usually $10 to $200.
This is the mechanism that makes wholesaling work financially. You put the property under contract, use the option period to analyze the deal and find a buyer, and only let the option period expire once you have a buyer committed. If you cannot find a buyer, you terminate during the option period and get your earnest money back.
Key distinction: The option fee (non-refundable, $10-$200) is separate from earnest money (refundable during option period). Never confuse the two. The option fee buys you the right to terminate. The earnest money shows you intend to close.
State-by-state differences
Different states handle earnest money and contract termination differently:
- Texas: Option period (separate option fee) + earnest money. Very wholesaler-friendly.
- Florida: Inspection contingency period. Earnest money refundable during inspection period.
- Ohio: Inspection contingency is standard. No separate option fee.
- Illinois: Attorney review period (typically 5 business days) allows termination with full EMD refund.
- California: 17-day inspection contingency standard. Earnest money typically 1-3% of offer price.
Regardless of state, always include a termination clause in your contract that allows you to exit and recover your deposit under defined conditions.
Note: Real estate contract law varies by state and jurisdiction. This is general educational information, not legal advice. Consult a real estate attorney in your state before entering into contracts.
How much is too much?
As a general rule for wholesaling, never put down more earnest money than you can afford to lose. Even with option periods and inspection contingencies, things go wrong:
- You miss the termination deadline by one day
- You fail to deliver written notice properly
- The title company disputes whether termination was timely
- You signed a contract without an adequate termination clause
For new wholesalers, keeping deposits under $500 per deal means a worst-case scenario costs you $500, not $5,000. As you gain experience and close more deals, you can increase deposits when needed to win competitive situations.
When bigger deposits help
There are situations where a larger earnest money deposit works in your favor:
- Competing with other offers: If a seller has multiple offers, a larger deposit signals that you are more committed.
- Agent-listed properties: Agents often filter out offers with low deposits. A $1,000+ deposit gets your offer taken seriously.
- Longer closing timelines: If you need 30+ days to close, a larger deposit reassures the seller that you will follow through.
- Probate and estate sales: Executors handling a deceased person's property want assurance that the buyer is not going to waste their time.
Earnest money and double closing
If you plan to double close instead of assigning, your earnest money strategy changes slightly. In a double close, you are actually purchasing the property (briefly) before reselling it. Transactional lenders will fund the purchase, but they may require you to have earnest money already deposited. Typically $500 to $1,000 is sufficient for transactional funding situations.
What happens if you lose your deposit
If a deal falls through outside your termination window, the seller can claim your earnest money. In practice, many sellers will negotiate. You might split the deposit or the seller may release it in exchange for a quick, clean exit.
Title companies often require both parties to sign a release form before disbursing earnest money to either side. If there is a dispute, the money sits in escrow until both parties agree or a court orders release. This is rare in wholesale transactions but does happen.
Tips for protecting your earnest money
- Always use a title company or attorney for escrow. Never give earnest money directly to the seller.
- Include an option period or inspection contingency. This is your exit clause.
- Calendar your deadlines. Set reminders three days before every termination deadline.
- Deliver termination in writing. Email is usually sufficient, but check your contract. Some require certified mail or hand delivery.
- Keep deposits proportional to your experience. $100-$500 when you are learning. Increase as you close more deals.
- Have your buyer committed before letting the option period expire. Do not gamble that you will find a buyer after you have lost your termination right.
Bottom line
For most wholesale deals, $100 to $500 in earnest money is appropriate when dealing directly with sellers. Agent-listed properties may require $1,000 or more. Always protect your deposit with an option period or inspection contingency, and never put down more than you can afford to lose. The earnest money is not where you make money in wholesaling. It is where you can lose it if you are not careful.