Earnest Money

What It Means

Earnest money (also called a good-faith deposit) is a sum of money submitted by the buyer alongside a purchase offer to signal serious intent to the seller. It is held in escrow — often by a title or escrow company or attorney, depending on state — until closing, at which point it is applied toward the buyer's Down Payment or Closing Costs.

In co-buying, earnest money introduces an immediate coordination question: which co-buyer writes the check, how is that contribution tracked, and what happens to the deposit if the transaction falls through?

How Earnest Money Works for Co-buyers

The earnest money amount is negotiated as part of the purchase offer — typically 1% to 3% of the purchase price, though this varies by market. In competitive markets, higher earnest money deposits can strengthen an offer.

When multiple co-buyers are involved, the deposit usually comes from a single party's account for logistical simplicity. However, the Co-ownership Agreement should document who funded the deposit, whether other co-buyers owe reimbursement, and how the deposit is credited at closing — either as a Capital Contribution toward the funding co-buyer's down payment portion or as a shared expense reimbursed proportionally.

Why It Matters for Co-owners

If the transaction fails and the earnest money is forfeited — due to a waived contingency or contractual default — the co-buyer who funded the deposit bears the loss unless the group has agreed otherwise. Conversely, if the deposit is returned (because a contingency was properly invoked), the refund goes to the account that originated the funds.

The Co-ownership Agreement or a separate pre-contract understanding should address earnest money logistics before an offer is submitted — including who funds it, how forfeiture risk is shared, and how the deposit is classified at closing.

Key Points

• A good-faith deposit submitted with a purchase offer, held in escrow until closing
• Typically 1%–3% of the purchase price, applied toward the down payment or closing costs
• Usually funded by a single co-buyer for logistical simplicity
• The group must agree on how the deposit is credited and whether other co-buyers reimburse
• Forfeiture risk should be addressed before the offer is submitted
• The Co-ownership Agreement should document who funded the deposit and how it is treated at closing