A commercial real estate earnest money deposit can prove a buyer is serious, but it can also put substantial funds at risk before closing. The purchase agreement usually decides when the deposit can be returned or claimed by the seller. There’s no single rule that applies to every deal.
Deposit size, escrow handling, due diligence dates, financing terms, and default remedies all affect your risk. A missed notice deadline or unclear refund clause can change what happens to the money.
Terms vary by property, deal structure, contract language, and state or local law. Review the signed agreement with qualified real estate and legal professionals before sending funds.
How earnest money in commercial real estate works
How the deposit moves from offer to closing
A buyer typically sends the deposit after the parties sign a purchase agreement. The agreement names the escrow holder, such as a title company, attorney, or other agreed party, and sets the payment deadline.
The holder keeps the funds until the contract directs their release or use. At closing, the deposit is often credited toward the buyer’s funds due, but the contract should say how and when that happens.
How earnest money differs from other costs
Earnest money is not the same as a down payment. It is usually an early deposit that may be credited toward the purchase price at closing, while the down payment is the buyer’s broader contribution to the purchase.
A due diligence or option fee may pay for a specific right, such as the ability to end the deal during a review period. Inspection costs, loan fees, and other transaction expenses are separate. Contract labels do not settle refund rights; the written terms do.
Why the deposit matters to both parties
For a seller, a deposit can show that the buyer has committed funds while completing reviews and arranging financing. The agreement may also let the seller claim the deposit if the buyer defaults.
For a buyer, the deposit can help secure time to assess the property. But if the buyer ends the deal outside an allowed contract right, some or all of the money may be at risk.
Set earnest money terms that fit the deal
What affects the deposit amount
No single deposit amount fits every commercial deal. The parties may weigh the price, property type, market demand, competing offers, and the work needed to complete the transaction.
A complex sale with many review steps may call for different terms than a straightforward purchase. The buyer’s and seller’s bargaining power also matters. Each side should assess the amount alongside the refund rights and deadlines.
How deposit timing and increases affect risk
Some agreements call for an initial deposit, followed by additional funds after a review period or another milestone. Each payment can increase the buyer’s exposure, especially if it becomes nonrefundable once a deadline passes.
Check the amount, due date, recipient, and payment method for every deposit. The agreement should also state what happens if a payment arrives late or not at all.
How to negotiate clear deposit terms
State whether the deposit is refundable, when any part becomes nonrefundable, and which events allow a refund. Tie those terms to clear dates and specific contract rights.
If the parties change the deposit amount or timing, record the change in a signed amendment. Email discussions or verbal promises may not change the signed agreement, depending on its terms and applicable law.
Use contingencies and deadlines to protect the deposit
How due diligence rights can preserve a refund
A review period may let the buyer inspect the building and review its condition before moving forward. The buyer may also review leases, rent rolls, title records, environmental reports, zoning, and financial records.
The purchase agreement controls the length of the review period, the buyer’s exit rights, and the notice required to use them. A buyer should request key records early so there’s time to assess them and act before the deadline.
How financing and other conditions affect deposit risk
A financing contingency may protect the buyer if a loan cannot be obtained on agreed terms, but only if the contract includes that right. Appraisal conditions, partner approval, or other requirements may also be negotiated into the deal.
Read each condition closely. The agreement may require the buyer to apply for financing, share updates, or give written notice by a set date before ending the deal.
How to track dates and follow the contract
Put every review, financing, and notice deadline on a shared calendar. Assign someone to track each date and confirm that required documents arrive in time for review.
Send notices using the method and address stated in the agreement. A call or casual email may not count as proper notice. Missing a deadline can limit the buyer’s right to cancel and recover the deposit.
Know when earnest money can be returned or forfeited
When the buyer may get a refund
The buyer may have a right to a refund after properly using a termination right or when a stated contingency is not met. That right depends on the agreement and the facts of the deal.
The buyer may need to give notice within a set period and follow specific delivery rules. Keep copies of notices and proof of delivery, along with any records that support the reason for ending the deal.
When the seller may claim the deposit
If a buyer fails to perform, the seller may have a contractual claim to the deposit. The result depends on the agreement, the buyer’s actions, and governing law; forfeiture is not automatic in every transaction.
The contract may state whether the deposit is the seller’s only remedy or whether other remedies are available. Both parties should understand that clause before signing, not after a dispute begins.
What happens when the parties dispute the funds
An escrow holder may need written instructions from both parties before releasing disputed funds. The holder’s role and options depend on the agreement and local rules.
If the parties cannot agree, the contract may require negotiation, mediation, or arbitration, or allow a lawsuit. Review the dispute-resolution clause and any terms that set a deadline for making a claim.
Manage earnest money risk from offer through closing
Buyer checklist before depositing funds
Before wiring money, confirm the amount, deadline, and named escrow holder. Check the refund conditions, contingency dates, notice rules, and instructions for applying the deposit at closing.
Keep proof of payment and copies of every notice. Confirm receipt with the escrow holder using contact details you have independently verified.
Seller checklist for evaluating deposit terms
Assess whether the amount and timing show a meaningful commitment for this deal. Consider when additional funds are due and whether the buyer has clear ways to recover the deposit.
Make sure the agreement explains the seller’s remedies if the buyer defaults. It should also spell out how the escrow holder can release funds, especially if the parties disagree.
What to confirm with professional advisers
A commercial real estate attorney can review the refund, default, and dispute terms. A broker can help assess deal structure, while an escrow or title professional can explain how funds will be held and released.
Ask each adviser to review the signed purchase agreement and applicable state or local law. Generic rules may not match the terms or legal requirements for your transaction.
Conclusion: Treat the deposit as a negotiated contract term
Earnest money shows commitment, but the written purchase agreement controls its amount, use, and possible return. Contingencies can protect the buyer, while missed deadlines or a failure to perform can put the deposit at risk. Clear escrow and dispute terms matter to both parties.
Before signing or wiring funds, confirm every deposit term, deadline, and notice requirement with your advisers.