Key Insight
Earnest money is the seller's test of buyer seriousness. A buyer who won't put money at risk isn't a serious buyer — and experienced sellers know it.
Refundable vs. Non-Refundable
The most important negotiating point in earnest money provisions:
Fully refundable: Buyer can walk for any reason during due diligence and recover the deposit. Protects the buyer but signals less commitment.
Refundable except for specific events: Deposit is refundable if the buyer walks based on due diligence findings (a "financing or diligence out"), but non-refundable if the buyer simply changes their mind or fails to perform without a legitimate reason.
Non-refundable: Deposit is forfeited if the buyer terminates without a valid contractual basis. Creates maximum seller protection and maximum buyer commitment.
When Sellers Require Earnest Money
Not all SMB deals require an earnest money deposit. Brokers often negotiate this structure when:
- The business has had previous buyers who wasted time without closing
- The seller has multiple interested parties and wants to prioritize committed buyers
- The asking price is high relative to industry norms and the seller wants to ensure only serious buyers proceed
Typical Amounts
- Deals under $500K: $5,000-$15,000
- Deals $500K-$2M: $15,000-$50,000
- Deals over $2M: $50,000-$100,000+
Application at Closing
If the deal closes, earnest money is typically credited toward the purchase price at closing — it's not an additional cost, just an early payment.
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