What is earnest money on a land sale?
The Consumer Financial Protection Bureau defines earnest money as a deposit a buyer pays to show good faith on a signed contract. In a land sale it does the same job. It shows the buyer is serious, and it gives the seller something if the buyer walks away without a reason the contract allows.
At closing, the deposit is not an extra payment. It counts toward the price. If the price is $40,000 and the buyer deposited $1,000, the buyer brings the other $39,000.
How much earnest money is normal for land?
There is no standard set by law. Buyers and sellers agree on it in the contract. For lower-priced rural lots, many contracts use a flat amount. For higher-priced land, the deposit is often a percentage of the price. In a competitive market, sellers can ask for more.
Think about what you give up while the land is under contract. During the due diligence period the buyer can usually cancel and get the deposit back, and you cannot sell to anyone else. A longer due diligence period or a higher price is a reason to ask for a larger deposit, or for part of it to become non-refundable after the period ends.
A very small deposit, such as $10 or $100, gives you almost no protection. It is often used in contracts where the buyer plans to assign the contract to another investor. That is not illegal, but ask whether the buyer will close in its own name. See our guide on how to check a land buyer is legit.
Who holds the earnest money?
A neutral third party should hold it: the title company or closing attorney named in the contract, or a real estate broker's escrow account if agents are involved. The CFPB notes that a seller or a third party such as an agent or title company can hold the deposit. A neutral holder protects both sides, because neither can spend the money before closing.
State law often controls how licensed brokers handle deposits. Florida, for example, requires a broker to place deposits in escrow right away and sets procedures when the buyer and seller both claim the money. Ask the title company for a receipt showing the deposit arrived, and check that the contract names the holder and a deadline to deposit, often a few business days after signing.
When does the seller keep the earnest money?
Only when the contract says so, usually when the buyer defaults after the due diligence period and contingencies have ended. Many land contracts say the earnest money is the seller's only remedy if the buyer fails to close. That clause is often called liquidated damages.
The escrow holder does not decide who is right. If the buyer and seller disagree, the title company usually holds the money until both sign a release or a court or state process decides. If you think you are owed the deposit, send written notice under the contract and ask a real estate attorney what to do next.
Kept earnest money can have tax effects. Ask a tax adviser how to report it. General information, not legal or tax advice.
When does the buyer get it back?
The buyer usually gets a full refund when:
- They cancel in writing during the due diligence or inspection period.
- The title search finds problems the seller cannot fix by closing.
- A survey, perc test, zoning check or access check fails and the contract has that contingency.
- Financing falls through and the contract has a financing contingency.
- The seller backs out or cannot close.
Do cash land buyers pay earnest money?
Most do, though the amount varies. A cash buyer has no loan contingency, so the main exits are due diligence and title. Ask three questions before you sign: how much is the deposit, who holds it, and when does it become non-refundable. Never pay a buyer anything yourself. Earnest money flows from the buyer into escrow, not from the seller to the buyer.
Red flags with earnest money
Be careful if:
- The buyer wants to send the deposit to you directly instead of to a title company.
- The contract has no deposit deadline, or the deposit never shows up at the title company.
- The buyer asks you to send money back because they "overpaid" the deposit. This is a common check scam pattern.
- Any wiring instructions change by email. Call the title company at a number you already trust.
How EasyLotBuyer handles this
EasyLotBuyer, founded in 2021, buys land directly. Our written cash offer arrives within 24 hours, and the contract names an independent title company or attorney that holds the earnest money and handles the closing. There are no fees or commissions, and we pay the closing costs. You never pay us anything; you are paid at closing.
Get a cash offer for your land