If you’re buying a home in Oregon, you’ll hear the term “earnest money.” But what exactly is it—and what happens to it if a deal falls through?
What Is Earnest Money?
Earnest money is a good faith deposit made by a buyer to show they’re serious about purchasing a property. Think of it as a handshake backed by a check. In Oregon, this amount is typically 1–3% of the purchase price, although the amount can vary depending on market conditions or what’s agreed upon in the sale.
If the buyer wakes up the day before closing and decides they don’t want to buy the home, the earnest money will go to the seller. If the buyer terminates based on a contingency in the contract, it will be returned to the buyer.
Where Does It Go?
Once an offer is accepted, the earnest money is deposited with the escrow or title company. It’s not just handed to the seller—it’s held in a neutral account until the transaction closes (or is terminated). This ensures both parties are protected during the escrow period.
Part of Your Total Cash to Close
It’s important to know that earnest money is not an “extra” fee. When a transaction moves to closing, the earnest money is applied toward the buyer’s total cash to close, which includes the down payment and closing costs. In other words, it’s already part of your investment in the home.
What Happens If the Deal Falls Through?
This is where things can get complicated. In Oregon, both the buyer and seller must mutually agree in writing on what happens to the earnest money if a transaction is terminated. The escrow company cannot release the funds to either party without written instructions from both sides.
It’s important to note: the buyer’s termination is unilateral—they cannot be forced to buy. It is the disposition of the earnest money that must be agreed upon.
If there’s a dispute, and the amount is under $10,000, the only legal avenue for resolution is small claims court.
What We’re Seeing Now
Over the last two decades, we’ve only encountered a few situations where a seller retained a buyer’s earnest money after a deal fell apart. Typically, buyers who terminate based on contingencies (inspection, financing, appraisal, etc.) get their earnest money back.
However, that’s changing.
Right now, we’re seeing four separate earnest money disputes, and in each case, the issue stems from a transaction being terminated improperly—meaning the buyer may not have followed the contract terms or timelines precisely. If A, B, and C are valid contingencies, the buyer cannot terminate based on Z and expect to get their earnest money back.
Who you work with to buy or sell your home matters!
It’s a sharp reminder that earnest money is a legal commitment, not just a casual deposit. Buyers and agents alike should be extra careful to follow the terms of the contract and understand the conditions under which earnest money is refundable.