Frequently asked questions
- What is earnest money?
- Earnest money — also called a good-faith deposit — is a sum of money a prospective buyer gives to the seller (or entrusts to a third party such as an escrow agent) as a sign of serious intent to purchase property. The amount is usually computed as a percentage of the property price; for example, a property priced at Rp2,000,000,000 with 2% earnest money means Rp40,000,000. If the transaction closes, this money is usually credited toward the purchase price.
- How does earnest money differ from a down payment?
- Earnest money is the good-faith deposit handed over early in the negotiation/contract process to show seriousness. A down payment is the portion of the price the buyer pays when the transaction closes, generally 10–30% of the price, with the rest financed by a mortgage. Earnest money is usually credited against the remaining price, but the two are different line items in the payment structure.
- How does earnest money differ from a rental security deposit?
- A rental security deposit is paid by a tenant to the landlord to protect the rental property against damage or arrears — it relates to the tenancy relationship. Earnest money relates to a property sale-and-purchase transaction and shows purchase commitment. Their functions, refund rules, and legal contexts differ.
- What is a typical earnest money amount?
- In many markets, the commonly referenced range is 1–3% of the property price, with 1%, 2%, and 3% as the figures most often used as worked examples. The actual amount varies with market convention, negotiating power, and the contract. This range is not a standard rule and not a recommendation — always follow the written agreement.
- When is earnest money refunded?
- Earnest money is generally returned to the buyer if the deal falls through through no fault of the buyer — for example seller default, serious defects found during due diligence, or mortgage denial where a financing contingency exists. The details always follow the contingency clauses written into the agreement.
- When can earnest money be forfeited?
- Earnest money is generally at risk of forfeiture if the buyer cancels without a contract-protected reason — for example the buyer walks away unilaterally after the contingency period ends. Example: earnest money of Rp40,000,000 with a 100% forfeiture assumption means Rp40,000,000 is forfeited and Rp0 returned; with a 50% assumption, Rp20,000,000 is forfeited and Rp20,000,000 returned. This is a contractual-assumption simulation — actual outcomes are determined by the agreement and applicable rules.
- Where is earnest money usually held?
- Common practice is to entrust earnest money to a neutral third party — such as an escrow account, an agent, or a notary — so funds do not move to the seller before the contract conditions are met. Who holds the funds and when they may be released must be clearly written in the agreement.
- Does this page give legal advice?
- No. All calculators and explanations on this page are educational estimates, not legal advice or professional financial advice. Earnest money rules differ by jurisdiction and depend on the contract you sign. Before handing over funds or cancelling a transaction, consult a notary or licensed legal adviser.