Earnest money: what it is and what happens to it

What earnest money is, and where it is written

Earnest money is the deposit you put down after mutual acceptance to show the seller you intend to close. It is written in two places on the NWMLS Residential Real Estate Purchase and Sale Agreement, Form 21. The dollar amount, the Delivery Date and who holds it sit in Specific Term No. 7 on page one. The handling rules sit in General Term b, titled Earnest Money. Page one also carries Specific Term No. 8, Default, where one of two boxes sets what happens to the deposit if a buyer fails to close without legal excuse.

The deposit is not an extra cost. Form 21 General Term a states that you pay the Purchase Price, including the Earnest Money, in cash at Closing. The deposit is part of the price, paid early. On the settlement statement escrow prepares before signing, it appears as a credit against what you bring to closing.

Think of it as the part of your purchase money that is on the table from day one. Every contingency in your contract (inspection, financing, title, resale certificate, septic) exists in part to say when that money comes back to you and when it does not. Knowing the deadlines on those contingencies is the same thing as knowing when your deposit is protected.

How much, and who holds it

Form 21 does not set an amount. It is a negotiated term, and on the Eastside it varies widely: a few thousand dollars on a modest condo in Redmond or Bothell, into the tens of thousands on a single-family home in Bellevue, Kirkland or Sammamish. In a multiple-offer situation a larger deposit is one way buyers signal commitment. How much to offer, and whether any portion should be released to the seller early, is a strategy conversation with your agent before the offer goes out.

Specific Term No. 7 has two boxes for who holds the money: the Buyer Brokerage Firm or the Closing Agent. On the Eastside the common practice is the Closing Agent, the escrow company named in Specific Term No. 10. Escrow is a neutral third party regulated in Washington. It holds the deposit in its trust account and releases it at closing, on the parties' joint written instruction, or through the process the contract and RCW 64.04.220 lay out when the parties disagree.

When a brokerage holds the deposit, General Term b sets trust-account rules (an interest-bearing account above $10,000 if you complete a W-9; the state Housing Trust Fund Account otherwise). When escrow holds it, your deposit sits in escrow's trust account until closing or termination.

When it is due, and how you deliver it

Specific Term No. 7 has a blank for the Delivery Date, written as a number of days after mutual acceptance. General Term b fills the gap: if the blank is empty, the deposit is due 2 days after mutual acceptance. Those days are counted under General Term l, Computation of Time. The period starts the day after mutual acceptance and ends at 9:00 p.m. on the last day, and any period of 5 days or less skips Saturdays, Sundays and legal holidays. A contract that goes mutual on a Friday with a 2-day Delivery Date is therefore due Tuesday at 9:00 p.m., unless one of those days is a legal holiday. We send you the exact date the day the contract goes mutual.

Delivery means the money arrives at the escrow company, not that you sent it. If it goes by mail, General Term b says it must arrive by the Delivery Date. Most buyers wire it or hand escrow a cashier's check; escrow tells you what it accepts. Form 89, Receipt for Earnest Money, is the written receipt. It records the date received, the amount and the form of payment, and General Term b instructs the Closing Agent to send written verification of receipt to both parties and their brokers.

What protects it, and when it is at risk

Your earnest money comes back to you when you terminate under a contingency you still hold. Form 35, the Inspection Addendum, says that if you disapprove the inspection and terminate within the Inspection Period the Earnest Money shall be refunded to Buyer. Form 22A (financing), Form 22T (title), Form 27 and 27CIC (resale certificate), Form 22D paragraph 7 (HOA documents) and Form 22S (septic) carry the same refund sentence, and Form 21 itself refunds it if the seller cannot deliver insurable title.

It is at risk in one situation: you fail, without legal excuse, to complete the purchase. That is General Term o, Default, and Specific Term No. 8 decides which version applies. Under Forfeiture of Earnest Money, the seller keeps the deposit, capped at five percent of the Purchase Price, as the seller's sole and exclusive remedy. Under Seller's Election of Remedies, the seller may keep the deposit as liquidated damages, sue for actual damages, or pursue other remedies.

The practical rule: every contingency has a deadline, and silence past a deadline usually waives the protection. Once contingencies are waived, backing out without a contractual reason puts the deposit in play. What a specific situation means for your money is a question for your agent and, if needed, a Washington real estate attorney.

Wiring it safely, and what happens at closing

Real estate buyers are a primary target for wire fraud, and the loss is usually total. The scam: a hacked email account is watched until you are expected to send money. Then an email arrives, appearing to come from escrow, with new wiring instructions and a reason to hurry. The money is gone. Form P6, Wire Fraud Alert, describes it, and Form 21 General Term a requires the party wiring funds to confirm the instructions through an independently verified phone number before wiring.

The rule at RexMont is one sentence: call the escrow officer at the phone number printed on your Purchase and Sale Agreement and read the instructions back before you wire. Never use a number from the email that sent the instructions. Escrow does not change wiring instructions by email mid-transaction; treat any such message as fraud until a live person at a known number confirms it. The same rule applies to your closing funds.

At closing, escrow applies the deposit to what you owe; it shows on your settlement statement as a credit, reducing the cash you bring to signing. If the sale terminates with the money coming back to you, General Term b lays out the release under RCW 64.04.220: a release form both parties sign, or a written demand to escrow.