What Is Earnest Money?
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Earnest money is the buyer’s good-faith deposit under a signed purchase contract. In NYC, the contract deposit is typically 10% of the price, held in escrow and credited at closing. Whether it returns after a failed deal depends on the contract’s contingencies, notices and deadlines, not on a general refund rule.
New York buyers often hear three phrases for the same transfer: earnest money, contract deposit and down payment at contract. The vocabulary is loose. The signed contract isn’t.
What the earnest money deposit actually does
The deposit shows that you can perform and gives the seller a remedy if you default without protection. It is serious money, but it isn’t a bonus for the seller.
Once the deal closes, the amount is credited toward the purchase price. The NYC Bar’s real-property guide describes the seller’s attorney holding the typical deposit in escrow until closing.
That role is narrower than many buyers assume. The escrow holder follows the contract and applicable trust-account rules. They don’t decide what feels fair after a dispute.
Earnest money vs down payment
Earnest money is paid after contract signing. The mortgage down payment is the buyer equity that remains after the loan. The same dollars can wear two labels during one transaction.
Suppose you buy for $1 million with a $750,000 mortgage and sign with a $100,000 contract deposit. Your total equity at closing is $250,000. The $100,000 already in escrow counts toward it, leaving $150,000 of price balance, plus buyer closing costs.
| Item | When it moves | What happens at closing |
|---|---|---|
| Contract deposit | After both sides sign | Credited toward price |
| Mortgage down payment | Built across deposit and closing funds | Becomes buyer equity |
| Closing costs | Mostly at or before closing | Pays taxes, lender, title and services |
If you’re budgeting cash, our closing-cost calculators keep those three buckets apart. A spreadsheet that calls all of them “down payment” will lie politely.
How much earnest money is enough in NYC
The NYC Bar says a buyer typically puts down 10% when signing. Ten percent is a custom with a very convincing reputation. It still isn’t a statute for every resale.
Your attorney may negotiate a different amount based on financing, property type and bargaining power. A new condominium offering plan has separate deposit rules. Under 13 NYCRR 20.3(o), the required down payment in the plan can’t be below the lower of $1,000 per unit or 10% of the offering price. A demand above 10% needs special disclosure.
Don’t borrow a national 1% to 3% rule and paste it onto a Manhattan contract. National earnest-money articles describe offer-stage deposits in other markets. New York’s attorney-led contract process works differently.
Is earnest money refundable? Earnest money contingencies
It can be, when the contract gives you a right to cancel and you exercise it correctly. Financing, appraisal, inspection and sale contingencies aren’t magic words. Each has a definition, a deadline and a notice procedure.
The calendar can be more dangerous than the inspection report. A buyer can have a valid concern and still lose protection by missing the contractual notice date.
Before you rely on a financing contingency, ask four questions:
- What loan amount, rate or term must be unavailable?
- Which lenders must you apply to, and by when?
- What written denial or notice does the contract require?
- Does a low appraisal trigger the same protection?
Your independent attorney should answer those from the actual draft. The New York Attorney General advises buyers to have their own lawyer review contracts and loan documents.
Who holds the deposit
In a typical NYC resale, the seller’s attorney holds the funds in an escrow account. New York Rule of Professional Conduct 1.15 requires client and third-party money to remain separate and controls records and disbursements.
Escrow is meant to be boring, which is exactly what you want. Confirm the account name and wiring instructions through a known phone number. Never trust a last-minute email that changes the destination.
We treat any wire change as a stop sign. The broker, attorney and bank should verify it through channels you already know.
If the remaining cash is the concern, a disclosed buyer rebate can reduce eligible cash due without changing who holds the deposit.
Can a larger deposit strengthen an offer
It can signal commitment, but it also increases the amount exposed to a default dispute. A seller may value certainty more than another percentage point sitting in escrow.
Offer strength can come from clean documentation, realistic dates and a lender who answers the phone. Bravery is not a contingency strategy.
If you want help balancing price, terms and cash exposure, our buyer representation and rebate applies to the whole negotiation. The rebate is separate from the contract deposit and must be disclosed to the lender.
For sponsor deals, read the new-construction negotiation guide before agreeing to a larger deposit or limited financing protection.
Before you wire a dollar
Read the deposit clause, default clause and each contingency together. Ask who holds the money, what releases it and what happens if buyer and seller disagree.
A bank account cannot read your contract for you. Once those answers are clear, the earnest-money deposit becomes what it should be: part of the purchase price on its way to closing.
You can then compare the remaining cash with our NYC closing-cost calculators instead of discovering two different “down payments” on the same week.
Common questions
Is earnest money required by law? No universal New York statute sets a resale deposit for every deal. The signed contract sets the obligation.
Who gets the deposit if the buyer defaults? The contract controls the remedy, and a dispute can prevent immediate release from escrow.
Does earnest money reduce closing costs? No. It is credited toward the purchase price, while closing costs remain separate.
Can the deposit be less than 10% in NYC? Yes, if the parties negotiate it. Ten percent is typical practice, not a universal resale mandate.
Nicole Fishman Benoliel co-founded NestApple in 2017. She's a lawyer admitted to the New York bar - her law degree is from La Escuela Libre de Derecho in Costa Rica, with further study at IE Business School in Madrid and an LLM from Fordham in New York. She does not act in a legal capacity at NestApple; every client is referred to an attorney who handles real estate deals full time.
