Earnest Money in Commercial Real Estate: How Much and When It Is Refundable

Earnest money in commercial real estate is a good-faith deposit the buyer puts into escrow to show it is serious about closing, usually 1 to 10 percent of the purchase price. It is refundable during the due diligence period and while contingencies are unmet, and it typically "goes hard," meaning it becomes non-refundable, once the due diligence period expires. If the buyer then fails to close for a reason not protected by a contingency, the seller usually keeps the deposit as its remedy.

Last updated July 2026.

Every commercial purchase runs on the earnest money deposit. It is the buyer's signal that it will perform, and it is the seller's compensation if the buyer walks. The dollar amount, when it becomes non-refundable, and what happens to it at closing are all set in the purchase and sale agreement, and a buyer that misreads any of them can lose a large sum on a deal that never closes.

How much is earnest money in commercial real estate?

Earnest money in commercial real estate generally ranges from 1 to 10 percent of the purchase price, with 1 to 5 percent the national norm and 5 to 10 percent common on desirable properties in competitive markets. On a soft deal or a hard-to-sell property, a seller may accept less than 1 percent; in a bidding situation, deposits can climb higher. There is no fixed rule, because the number is a negotiation over how much commitment the seller demands and how much risk the buyer will put up before it has finished its diligence. On a $5 million property, a 3 percent deposit is $150,000, which is real money to lose.

Is earnest money refundable in commercial real estate?

Earnest money is refundable up to a point and non-refundable after it. During the due diligence or inspection period, the buyer can usually terminate for any reason, or no reason, and get the full deposit back. Once that period expires and the deposit "goes hard," it is non-refundable if the buyer walks for a reason the contract does not protect, such as simply changing its mind or, often, failing to secure financing. The deposit generally remains refundable, though, if the seller defaults, if a specific contingency written into the contract is not satisfied, or sometimes if the appraisal comes in below the price and a financing contingency is in place. The exact triggers are whatever the purchase and sale agreement says, which is why those clauses get read closely.

What does it mean for earnest money to "go hard"?

Earnest money "goes hard" when it converts from refundable to non-refundable, almost always at the end of the due diligence period. Before that date, the buyer controls the deal and can exit with its deposit; after it, the seller has the security of knowing the buyer forfeits the money if it fails to close. Sometimes the deposit goes hard in stages, with an initial amount at signing and an additional amount released as diligence milestones pass. Tracking the exact date the deposit goes hard is one of the most important calendar entries in any acquisition, because a buyer that lets it pass while still uncertain has traded away its exit.

What happens to earnest money at closing?

At closing, earnest money is credited toward the buyer's purchase price. The escrow agent releases it, and it is applied against the amount due, so the buyer is not paying it twice. It only becomes a loss if the deal collapses after the deposit has gone hard and the buyer is the party in default. If the seller defaults instead, the buyer typically recovers the deposit and may have other remedies, including specific performance to force the sale.

Who holds the earnest money deposit?

A neutral third party holds the earnest money, usually a title company or an escrow agent named in the purchase and sale agreement. Neither the buyer nor the seller holds it directly, which protects both sides: the buyer knows the seller cannot spend it, and the seller knows it is secured. The escrow instructions in the contract govern exactly when and to whom the escrow agent releases the funds, and disputes over a deposit are really disputes over what those instructions and the contingency clauses require. A buyer tracking the deposit through to closing will also want to reconcile the escrow deposit against its books so the credit at closing ties out cleanly.

How is earnest money different from a security deposit?

Earnest money and a security deposit solve different problems. Earnest money is paid by a buyer in a purchase to show commitment to closing, and it is credited to the price or forfeited. A security deposit is paid by a tenant in a lease to secure performance of the lease obligations, and it is returned at the end of the term less any deductions. One belongs to the acquisition; the other to the tenancy. They get confused because both are money held as security, but the documents, timing, and rules are entirely separate.

Why the deposit terms belong in your deal abstract

The earnest money amount, the date it goes hard, and the conditions for its return are among the most consequential terms in a purchase and sale agreement, and they are scattered across the deposit, contingency, and default sections. Pulling them into a structured record, alongside the closing date, the due diligence deadline, and the financing contingency, is how a diligence team keeps a seven-figure deposit from going hard while a title problem is still unresolved. That is exactly what purchase and sale agreement abstraction captures, and the broader document is explained in the guide to what a purchase and sale agreement is in commercial real estate.

The bottom line

Earnest money is the buyer's skin in the game: usually 1 to 10 percent of the price, refundable during due diligence, and non-refundable once the deposit goes hard. Get the amount, the go-hard date, and the refund contingencies onto a calendar and into a structured abstract, because the whole point of the deposit is that missing one of those dates turns a negotiating chip into a forfeited check. To keep every acquisition deadline in one place, abstract the agreement with purchase and sale agreement abstraction and move the dates into critical date extraction.