Earnest money is the deposit you put down when the seller accepts your offer. In Indiana it goes into a broker's trust account or to whoever your purchase agreement names, such as a title company, and it's credited to you at closing. Whether you get it back if the deal falls apart depends on your purchase agreement and whether you met its deadlines.
I'm Wes Johnston, a Realtor with Trueblood Real Estate in Fishers. I'm not a lawyer, and this page isn't legal advice. The rules below come from the Indiana Code and the Indiana Real Estate Commission's rules, with a link on each one. Your purchase agreement controls your deal.
Here's the thing: earnest money isn't an extra cost. It's part of the money you were going to bring to closing anyway, just paid early. What matters is where it sits while you're under contract and what has to happen for you to get it back if the deal doesn't close.
It's a deposit that shows the seller you're serious. You offer it as part of your purchase agreement, and once the seller accepts, it's held until closing. At closing it's credited toward your down payment and closing costs, so you bring that much less to the table.
If you walk away for a reason your contract doesn't allow, or miss one of its deadlines, the seller may have a claim to it. That's the whole point from the seller's side: the house comes off the market for you, and the deposit backs up your promise.
Indiana law doesn't set an amount. It's a term in your offer, like price or the closing date. Your agent will suggest an amount based on the price of the house and how much competition there is for it.
A bigger deposit can make your offer look stronger to a seller, but it's also more money at risk if you miss a deadline. We'll talk through both sides before you sign. Check with your lender too; they'll want to see where the money came from.
Your purchase agreement names who holds it. Under the Indiana Real Estate Commission's rules, within two banking days after the seller's final acceptance, the listing broker either deposits the money in the broker's escrow or trust account or delivers it to whoever the purchase agreement says will receive it (876 IAC 8-2-2). That can be a title company.
If a broker holds it, state law requires the brokerage to keep it in a trust account separate from its own money. The trust account has to hold “all earnest money deposits,” and the brokerage has to keep records showing whose money is whose (IC 25-34.1-4-5).
If your deposit is something other than cash, such as a promissory note, the seller has to be told before accepting, and it has to show on the earnest money receipt (876 IAC 8-2-2(b)).
When your purchase agreement says it is. Some offers include it up front and some give you a set time after acceptance to deliver it. Either way, the two-banking-day clock in the Commission's rule starts at the seller's final acceptance, so plan to have the funds ready when you make the offer.
How you pay it matters. Ask the holder how they take it, and if you wire it, confirm the wiring instructions by phone before you send a dollar. More on that below.
It depends on your purchase agreement. Most buyer offers include contingencies: conditions the deal depends on, like an acceptable inspection, your loan being approved, or the appraisal. If one of those fails and you end the contract the way it says to, within its deadline, the contract usually provides for your deposit to come back to you.
The deadlines are where people get hurt. Each contingency has its own time limit and its own way to give notice. Miss it, and you may have given up that way out. That's why I track every date from the day the offer is accepted. See how the inspection period works and what happens if the appraisal comes in low for two of the most common ones.
A broker holding the money doesn't have to pay it out unless the deal closes, the buyer and seller sign a mutual release, or a court orders it (876 IAC 8-2-2(c)).
When the broker is told one side won't go through with the deal, the broker can release it as the purchase agreement provides, or send every party a certified letter saying who the money will go to. If nobody signs a mutual release or files a lawsuit within 60 days of the mailing date, the broker may release it to the party named in the letter (876 IAC 8-2-2(d)).
If you're in a real dispute over a deposit, talk to a real estate attorney. Most of the time it never gets there, because both sides sign a release as part of ending the contract.
Scammers watch for home purchases and send fake wiring instructions that look like they came from your agent or the title company. The Consumer Financial Protection Bureau's advice: confirm wiring instructions with people you already know and trust, don't use phone numbers or links from an email, and if you think you've been scammed, call your bank right away and ask for a wire recall, then file a complaint with the FBI at ic3.gov (CFPB: Mortgage closing scams).
My rule: before you wire anything, call the title company at a number you got on your own, not one from the email, and read the account details back to them. The same goes for your money on closing day.
More buyer questions, answered: the steps to buying your first home, how the inspection period works, what happens if the appraisal comes in low, new construction or resale, what happens on closing day, and what to know before moving to Indianapolis. For the money side, see Indiana closing costs.
Earnest money is one of the terms I walk through with every buyer before we write an offer: how much, who holds it, and which dates protect it. Tell me what you're looking at and I'll tell you how I'd structure it.
I'm not a lawyer, and I'll tell you when a question belongs with one.
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This page is general information, not legal advice. Whether a deposit is returned depends on the terms of your purchase agreement; talk to a real estate attorney about a specific dispute.