What happens to your earnest money after your offer is accepted? If you are buying in Minneapolis or across Hennepin County, this small but important deposit can shape your offer and protect you along the way. You want to be competitive without taking on unnecessary risk. In this guide, you’ll learn how earnest money works in Minnesota, typical local amounts, key contingencies that safeguard your deposit, and practical steps to avoid mistakes. Let’s dive in.
Earnest money basics
Earnest money is a good-faith deposit you provide once a seller accepts your offer. It shows you are serious and gives the seller some protection if you walk away without a contractual reason. The amount is negotiated and written into your purchase agreement.
This deposit is different from your down payment and closing funds, which are paid at closing. If you close, your earnest money is credited to your purchase price, down payment, or closing costs as the contract specifies. While not required by Minnesota law, it is customary in most residential sales.
How it works in Minnesota
Who holds the deposit
The deposit is typically held in a trust or escrow account by the listing brokerage, your brokerage, or a title and escrow company named in the purchase agreement. Minnesota brokers must keep client funds in trust accounts, and the contract will state who holds the funds.
When you deposit funds
Your purchase agreement will include a deadline such as within a set number of business days after acceptance. Local practice often means delivering within a few business days. Always get a written receipt right away and save contact information for the escrow holder.
Accepted payment forms
Cashier’s checks, certified checks, and wire transfers are common. Some escrow holders accept personal checks depending on timing. Wire transfers are frequent, but be alert to fraud. Verify wiring instructions directly with the escrow or title company using a known phone number.
What happens at closing
If the sale closes, the earnest money becomes part of your funds at closing and is credited per the contract. If the sale ends under a contingency that protects you, the contract typically calls for the deposit to be returned to you.
Documents to keep
Keep copies of your signed purchase agreement, any addenda, and your escrow receipt. These documents control where the deposit goes and how it can be released.
Typical amounts in Minneapolis
There is no single standard amount, and the right figure depends on price point, competition, and seller preference. In the Minneapolis area, you will often see:
- Lower-priced homes: about 1,000 to 3,000 dollars.
- Mid-range homes: around 1 percent of the purchase price, often 2,500 to 10,000 dollars depending on price.
- Higher-priced homes or competitive situations: 2 to 3 percent, and sometimes more to stand out.
Amounts rise when multiple offers are likely and can soften when the market cools. Other factors include financing strength, appraisal risk, and the property’s condition. Ask your agent for current norms in your micro-market so you can calibrate your offer with confidence.
Contingencies that protect you
Contingencies are your main tools for a refundable deposit. Each one has deadlines and notice rules in the contract. Meet every date in writing to preserve your rights.
Inspection contingency
You get a defined period to complete inspections and decide how to proceed. You can accept the home, request repairs or credits, renegotiate, or cancel within the inspection window. In Minnesota, buyers often include radon testing, along with structure, HVAC, plumbing, and other key systems.
Financing contingency
If your lender does not approve your loan by the date in the agreement, this contingency can allow you to cancel and recover the deposit, provided you applied promptly and sent required notices on time.
Appraisal contingency
If the appraisal is lower than the purchase price, you may renegotiate, bring additional funds, or cancel if allowed by your contract. How your deposit is handled depends on the exact language in your agreement.
Title and disclosures
You have the right to a clear, marketable title. If title issues cannot be cured, many contracts allow you to cancel and get a refund. For homes built before 1978, required lead-based paint disclosures and the option to test also apply.
Sale of your current home
Some buyers make an offer contingent on selling their current home. In more competitive segments, sellers may resist this, so the terms and timing need to be precise.
Deadlines and notices
All deadlines live in your purchase agreement and must be followed exactly. If your inspection period ends on a Friday and you do not send a written repair request or cancellation before the deadline, you could waive the inspection contingency. Always send notices in writing to the parties and addresses listed in the contract.
Avoid disputes and forfeiture
Common reasons you could forfeit
- Missing contingency deadlines or notice requirements.
- Canceling for a reason not allowed by the contract.
- Failing to complete agreed buyer duties, such as timely loan application.
How disputes are resolved
Contracts may require mediation or arbitration, or the parties can agree in writing to release funds. If the escrow holder receives conflicting instructions, they usually hold the deposit until both sides agree or there is an award or court order.
Wire fraud safety
Real estate wire fraud is a real risk. Confirm wiring instructions by phone using a verified phone number from your contract or a known source. Do not trust wiring information received by unexpected email.
Action checklist
- Read your purchase agreement before signing and confirm who holds the deposit.
- Calendar all contingency and deposit deadlines.
- Send every notice in writing and keep copies.
- Get a written escrow receipt and contact information on day one.
- Verify wire instructions by phone using a known number.
- If a dispute arises, contact your agent promptly and consider legal counsel.
Smart offer strategies
In multiple-offer situations, a larger deposit can signal strength. You can also shorten timelines or offer flexible closing terms to stand out. Be careful about removing contingencies, because that increases risk. In a cooler market, you may use smaller deposits and fuller protections. The right mix depends on your price point, property type, and neighborhood dynamics.
Next steps
Earnest money should work for you, not against you. Choose an amount that matches your goals, protect it with clear contingencies, and follow every deadline in writing. If you want a tailored plan for your Minneapolis or Hennepin County search, connect with Juan Rivera for calm, informed guidance.
FAQs
Is earnest money refundable in Minnesota?
- Often yes, if you cancel under a written contingency within the deadline; if you breach the contract, the seller may have a claim to the deposit.
How much should a first-time buyer in Minneapolis offer?
- Many first-time buyers start around 1,000 to 3,000 dollars, increasing the amount in competitive segments or at higher price points.
Who holds earnest money in Hennepin County?
- The listing broker, your broker, or a title and escrow company typically holds the funds in a trust or escrow account named in the contract.
What if the appraisal is low in Minneapolis?
- If you have an appraisal contingency, you can try to renegotiate, add cash, or cancel and recover the deposit if you follow the contract steps.
Where do I send my earnest money and how do I confirm?
- Send it to the escrow holder listed in your contract and get a written receipt; verify any wiring instructions by phone using a known number.
Can I strengthen my offer without risking my deposit?
- Yes; consider a larger deposit plus strong but balanced timelines, while keeping key contingencies to manage risk.
