Earnest Money When Selling to a Cash Buyer: What's Normal and What's a Red Flag

What earnest money is

Earnest money, also called a good faith deposit, is money the buyer puts down to show they intend to close.^[2] If the sale closes, it's usually applied toward the buyer's costs at closing.^[2]

How much is typical

The National Association of REALTORS® says earnest money is often around 3% of the purchase price, or a rounded number like $5,000, and that the amount depends on the market and the seller's request.^[1]

A small deposit leaves the buyer with little money at risk, though their other obligations depend on the contract and law. An Arizona real estate law firm lists little earnest money, often never deposited with a title company, among the signs of a wholesaler contract.^[3] NAR's consumer guide describes typical deposits of 1% to 10%.^[2]

The deposit amount is usually negotiated, but state law can set special requirements for wholesale transactions. Louisiana, for example, requires contracts involving its defined residential wholesaling to include a deposit of at least 1% of the purchase price, held in escrow under the statute.^[5] That requirement took effect August 1, 2026.^[6] Check your state's rules before agreeing to a token deposit.

Louisiana's rule covers its defined wholesaling of one-to-four-unit residential property, not every cash purchase. It does not apply to wholesale agreements completed before the effective date. The statutory minimum is not a recommendation that 1% gives you enough protection.^[5]

Who should hold it

Earnest money is usually held by a neutral escrow holder, such as a title company or attorney named in the contract.^[2] Confirm the arrangement complies with applicable state law and get written confirmation that the funds arrived. Deposit release and refund rights depend on the contract and applicable law; Louisiana's covered wholesale transactions have specific statutory rules.^[5]

• Good sign: the contract names a title company or attorney as escrow holder, and you get written confirmation the deposit arrived.
• Red flag: the buyer holds the deposit themselves, the contract doesn't say who holds it, or the deposit never actually reaches the title company.^[3]

What happens if the buyer backs out

It depends on the contract and applicable law. A buyer who validly exercises a cancellation right and follows its notice requirements may be entitled to a refund. If the buyer breaches the contract, the seller may be entitled to the deposit or other remedies. Separate option or due-diligence fees can have different refund rules.^[4] Louisiana's Act 807 also preserves a deposit refund when the seller exercises its statutory cooling-off right in a covered wholesale transaction.^[5]

Read the inspection and cancellation clauses even in an as-is sale. As-is language does not by itself remove inspection or cancellation rights. A buyer who properly exercises a contractual cancellation right may receive the earnest money back, but separate option or due-diligence fees may remain nonrefundable. A small deposit also does not necessarily cap the buyer's liability if they breach the contract.^[4]

Texas's current resale contract is a state-specific example: sections 5B and 5D address termination-option rights and fees, section 7D preserves specified inspection and termination rights with an as-is choice, and section 15 describes default remedies. These are terms of that form, not nationwide rules.^[4]

How to protect yourself

1. Ask for a meaningful deposit and write the amount and deadline into the contract.
2. Confirm the escrow arrangement complies with applicable state law and get written confirmation that the deposit arrived.
3. Ask your attorney to define when the buyer risks losing the deposit and which contractual or statutory refund rights still apply.
4. Read what happens to the deposit if either side cancels, including any required refund rights and notice deadlines.