Earnest Money in Oregon & Washington: What Buyers and Sellers Should Know

Earnest money sounds pretty straightforward: a buyer makes an offer and puts some money down to show the seller they're serious.

But once you get into an actual transaction, the questions start.

Who holds the money? Can the buyer get it back? Does the seller ever get to keep it? What happens to it at closing?

Here's the simple version.

What Is Earnest Money?

Earnest money is money a buyer agrees to deposit as part of the purchase contract.

It helps demonstrate to the seller that the buyer intends to follow through with the transaction.

The amount isn't simply an additional cost of buying the home. Assuming the transaction closes normally, the buyer generally receives credit for the earnest money as part of the closing.

Where Does the Money Go?

The money isn't normally handed directly to the seller.

It is generally deposited with the escrow holder or another party specified in the purchase agreement and held while the transaction moves toward closing.

That's an important distinction.

The seller doesn't automatically own the earnest money just because the buyer's offer was accepted.

Can a Buyer Get Their Earnest Money Back?

Potentially, yes.

This is where the actual purchase contract becomes extremely important.

Depending on the terms of the transaction, a buyer may have contractual rights to terminate during certain periods or under certain conditions.

The important thing is knowing:

• What protections are in the contract

• When those protections expire

• What notices need to be given

• How those notices must be delivered

• What happens if a deadline is missed

This is one reason I pay so much attention to transaction deadlines.

A protection isn't very helpful if you accidentally let it expire.

When Can Earnest Money Be at Risk?

The exact answer depends on the contract, but problems can arise when a buyer:

• Backs out without a contractual right to do so

• Misses an important deadline

• Doesn't provide a required notice correctly

• Fails to perform obligations under the agreement

• Waives a protection without fully understanding what they're giving up

That doesn't necessarily mean a seller automatically receives the money whenever there is a disagreement.

Earnest-money disputes can become much more complicated, which is another reason both sides should understand the contract before a problem occurs.

What Sellers Should Know

Earnest money matters to sellers too.

When I'm evaluating an offer for a seller, I'm not only looking at the purchase price.

I'm looking at the entire offer.

That includes things like:

• Earnest money amount

• Financing

• Down payment

• Contract deadlines

• Buyer protections

• Closing timeline

• Overall likelihood that the buyer can perform

A huge purchase price doesn't necessarily make an offer strong if the rest of the contract creates unnecessary risk.

Oregon and Washington Aren't Identical

This is especially important for people buying or selling on both sides of the Columbia River.

Oregon and Washington use different contracts and have different state laws affecting real estate transactions. You shouldn't assume something works exactly the same way simply because you've previously purchased a home across the river.

For example, Washington's statutory seller-disclosure process generally requires delivery within five business days after mutual acceptance unless otherwise agreed, and generally gives the buyer three business days after delivery to rescind. Oregon's statutory disclosure framework generally provides a five-day revocation period following delivery unless that right has been waived. Those aren't earnest-money rules themselves, but they're a good illustration of why contract rights and deadlines can differ substantially between Oregon and Washington.

The Biggest Takeaway

Earnest money isn't something buyers should be afraid of.

But you should understand what you're agreeing to before signing the offer.

For buyers:

• Know how much you're depositing.

• Know where it's being held.

• Understand your contractual protections.

• Put important deadlines on your calendar.

• Talk to your agent immediately if something changes.

For sellers:

Don't evaluate an offer solely by its price. Earnest money and the rest of the contract can tell you quite a bit about the strength of the buyer and the structure of the deal.

If you're buying or selling in Portland or SW Washington, I'll help you understand the contract instead of simply sending documents over for signatures. And for sellers, I offer full-service listing representation for low commission of 1.25%, including professional marketing, negotiation, transaction management, and direct communication throughout the sale.