What Is Earnest Money in Georgia, and Can I Lose It?

What is earnest money when you buy a home in Georgia, and can you lose it? Earnest money is the good faith deposit a buyer makes on a signed purchase contract, and yes, it can be lost. If the sale closes, it goes toward your purchase. If the contract ends for a reason the contract allows, it comes back to you. If you walk away for a reason the contract does not cover, the seller may be entitled to it, which is why our team helps buyers read the earnest money terms and dates before the offer is signed.

The amount of a deposit draws the attention. The instructions that travel with it decide where it goes. Every earnest money check or wire arrives with a set of written terms: who holds it, which account it sits in, and what has to happen before anyone may release it. Read those terms closely, and the question of losing it becomes a question of dates you can see in advance.

This guide is from Andrew and Jassey Nguyen. NRG Nguyen Realty Group is a real estate team with Keller Williams Realty Peachtree Road helping buyers in Atlanta, Georgia protect their earnest money from the offer to the closing table.

What does earnest money do in a Georgia purchase?

The Consumer Financial Protection Bureau defines earnest money as "a deposit a buyer pays to show good faith on a signed contract agreement to buy a home." It goes on: if the sale closes, the deposit "may be applied to closing costs or the down payment." If the contract is terminated for a permissible reason, it is returned to the buyer. "If the buyer does not perform in good faith, the earnest money may be forfeited and paid out to the seller."

Georgia's Real Estate Commission adds in its answers for licensees that earnest money is not required to create a binding contract, though it calls the deposit "generally desirable to show the purchaser's good faith."

For a buyer, earnest money is part of the money you were already planning to bring. Fannie Mae's Selling Guide treats the deposit on the sales contract as an acceptable source of funds for both the down payment and the closing costs. Paid early, it is applied at closing. Our article on what closing costs a buyer pays in Georgia shows where it fits in the full picture.

How much earnest money should I put down?

There is no figure set by the state. The Real Estate Commission's answers describe whether to ask for earnest money, and how much, as a policy decision for the broker, shaped by what the seller wants. In practice, the amount is a term you propose in your offer, and the seller can accept it, counter it or ask for more.

A larger deposit can show a seller weighing more than one offer how committed you are.

The more useful question is how much you could afford to lose without changing your life. If the number you are considering feels uncomfortable, that is a signal to lower it or tighten the plan around your dates.

Fannie Mae's guide also tells lenders that "large earnest money deposits and deposits that exceed the amount customary for the area should be closely evaluated." A bigger deposit can bring more questions from your lender about where the money came from, so plan the paperwork along with the amount.

Who holds earnest money in Georgia?

Your contract names the holder. The Real Estate Commission puts it plainly: "The party who holds the earnest money is controlled by the negotiation of the parties as expressed in the provisions of the sales contract." The holder may be a real estate brokerage or a closing attorney, depending on what you and the seller agree to.

When a brokerage holds it, the Real Estate Commission's rules apply. Rule 520-1-.08 requires agents to place earnest money in the broker's custody "as soon after receipt as is practicably possible." Unless the parties agree otherwise in writing, the broker must then promptly deposit it "in a federally insured account designated by the financial institution as a trust account and registered with the Commission." Once an agent receives the money, the Commission's answers say, the decision about where it goes "rests solely with the broker." The agent who took your check cannot hand it back on their own.

When a closing attorney holds it, the attorney's own rules apply. The State Bar of Georgia keeps a list of the financial institutions approved to hold lawyers' client funds under its professional conduct rules. Our article on whether you need an attorney to close on a house in Georgia explains the closing attorney's role.

How do I send earnest money safely?

Your contract may say when the deposit is due and how it can be paid. Read that with your closing attorney, and put the due date on your calendar the day the contract becomes binding.

If you wire it, protect the wire. The CFPB warns that scammers send homebuyers spoofed emails that pose as the real estate agent, the settlement agent or another trusted person, with false wiring instructions. Its guidance is to confirm instructions in person or by a phone number you agreed to in advance, and to never follow instructions contained in an email.

Keep a record of the payment. Your lender may ask for one. Fannie Mae's guide says receipt of the deposit must be verified by a copy of your canceled check or a written statement from the holder. If the deposit counts toward your required contribution, the lender also verifies that it came from an acceptable source, and bank statements must show that the average balance over the past two months was large enough to support it. If the money is coming from a gift or another account, tell your lender before you write the offer.

When do I get my earnest money back?

You get it back when the contract ends for a reason it allows, and you follow the contract's steps to end it.

The first window to know on the standard Georgia contract is due diligence. During that period, a buyer can generally terminate for any reason by written notice delivered the way the contract requires. Our article on the due diligence period in Georgia covers how to plan those days, how option money differs from earnest money, and what changes once the period ends.

Other protections exist only if they are written into your contract. A financing contingency is tied to your loan. An appraisal contingency addresses a value below the price. A home sale contingency ties your purchase to the sale of your current home, and our article on home sale contingencies in Georgia explains how they work. Each has its own terms and its own deadline, and each covers its own reason for ending the contract.

FHA loans add a federal protection. HUD's model amendatory clause for FHA purchases says the purchaser "shall not be obligated to complete the purchase" or incur any penalty "by forfeiture of earnest money deposits or otherwise" unless given a written statement of appraised value not less than the price written in the clause. Our article on what happens if the appraisal comes in low in Georgia covers the appraisal side in full.

If the seller is the one who fails to close, your rights depend on the contract. Talk with a Georgia real estate attorney about your options.

When can I lose my earnest money?

You can lose it by ending the contract after your protections have passed, for a reason the contract does not cover. Preferring another home after due diligence ends falls outside the protections above.

You can lose it by missing a step. A termination notice sent a day after the deadline, or sent by text when the contract calls for written notice delivered a certain way, may not count. The same is true of a financing or appraisal deadline. Each protection has a date and a time, and once that moment passes, so does the protection.

You can also put it at risk by not doing your part. If the loan falls through because you missed a step your contract asked of you, a financing protection may not help.

Your contract may also say what the seller receives if a buyer defaults. Ask your closing attorney to walk you through it before you sign.

Who decides where the money goes if the deal ends?

The holder follows the contract and the rules, and a demand from one side does not move the money on its own.

For a brokerage, Rule 520-1-.08 lists the circumstances in which a broker who releases earnest money from the trust account is treated as having handled it properly:

1. The offer is rejected.
2. The offer is withdrawn before it is accepted.
3. The transaction closes.
4. All parties with an interest in the funds sign a written agreement, separate from the contract, directing the release.
5. An interpleader action is filed in court, which asks a judge to decide who is entitled to the money.
6. A court orders the release.
7. The broker makes a reasonable interpretation of the contract that directed the deposit.

The rule adds two safeguards. A broker who releases trust funds contrary to the terms of the contract is considered by the Commission to have shown incompetence to act as a broker. And when a broker releases money without the express agreement of all parties, the broker "must immediately notify all parties in writing of the disbursal." Refunds of earnest money must be paid by check or credited at closing.

When the Commission is asked how a broker should handle earnest money a buyer or seller is demanding, its answer is "in accordance with the terms of the sales contract and the procedures outlined in Rule 520-1-.08."

When both sides agree, a signed release settles it. When they disagree, the money can stay where it is until the dispute is resolved, which may involve attorneys and a court. A Georgia real estate attorney is the right person to advise you then.

How do I protect my earnest money, step by step?

1. Before you write the offer, choose an amount you could lose without changing your plans, and confirm the funds are in your own account.
2. Read the earnest money terms with your agent and closing attorney: the holder, the due date, the payment method and what happens on default.
3. Once the contract is binding, write down every deadline with its time of day, and put each one on your calendar.
4. Send the deposit on time. If you wire it, confirm the instructions by a phone number you already trust.
5. Keep the receipt, the canceled check or the holder's written statement, and share it with your lender.
6. Schedule inspections at once, and keep your loan moving with quick answers to every lender request.
7. Make your decision inside due diligence, with room to spare for a repair conversation.
8. If you decide to end the contract, send written notice the way the contract requires, before the deadline.
9. Treat any extension as real only once both sides have signed it.

What mistakes put earnest money at risk?

The first is choosing the amount for the offer and forgetting the downside. A deposit sized to impress a seller can be a deposit you cannot afford to lose.

The second is losing track of the clock. Due diligence ends on its own, and so do other protections. A buyer who expects a reminder from the other side may find the window already closed.

The third is wiring money on instructions from an email, without the phone call the CFPB recommends.

The fourth is making big financial changes while under contract. A new car loan, a job change or a large purchase on credit can affect your loan, and a loan that fails late in the contract can put the deposit in question.

What could this look like in practice?

This is an example, not a real client.

Picture a buyer under contract on a home in metro Atlanta with a conventional loan. They choose an earnest money amount they could lose and still keep their savings cushion, confirm the wiring instructions with the closing attorney's office by a phone number they looked up themselves, and send the attorney's written receipt to their lender.

The inspection finds an aging roof and moisture in the crawl space. The buyer asks for a credit, and the seller declines. With two days left in due diligence, the buyer decides the home is no longer the right one at that price. Our team helps them send written notice of termination before the deadline, in the form the contract requires.

Both sides sign a release, and the holder returns the deposit. A few weeks later, the buyer goes under contract on another home.

Had they waited one more day, the same decision would have carried a different risk.

Frequently asked questions

Is earnest money the same as a down payment? Earnest money is paid early, after the contract is signed. If the sale closes, it is applied toward your down payment or closing costs.

Who holds earnest money in Georgia? Whoever your contract names. A brokerage deposits it in a federally insured trust account registered with the Real Estate Commission. A closing attorney holds it under the State Bar of Georgia's rules for client funds.

Can the holder give my earnest money to the seller without my agreement? A brokerage holder must follow the contract and Rule 520-1-.08, and if it releases money without the agreement of all parties, it must notify everyone in writing right away. If you disagree with a release, talk with a Georgia real estate attorney.

Can I lose earnest money if my loan falls through? It depends on whether your contract includes a financing protection, its deadline and whether you did your part. An FHA purchase also carries HUD's amendatory clause tied to the appraised value.

Know where your deposit stands

Earnest money stays safest with a buyer who knows three things from the first day: who holds it, which dates protect it and what the contract asks in return. Settle those before you sign, and the deposit becomes one more part of a plan you understand.

NRG Nguyen Realty Group is a real estate team with Keller Williams Realty Peachtree Road helping buyers in Atlanta, Georgia protect their earnest money from the offer to the closing table.

Send us a message: nrgmovesyou.com/contact

Or book a 15-minute discovery call with our team: schedule a call

Andrew and Jassey Nguyen

NRG Nguyen Realty Group

Real Estate Agents in Atlanta, GA

678-743-1586

nrgmovesyou.com

This article is general information, not legal or financial advice. Contract terms vary and the contract you sign controls, so review yours with a Georgia real estate attorney and your loan questions with your lender.