What earnest money is
Earnest money is money a buyer agrees to deposit in connection with an accepted purchase agreement. It demonstrates performance of the buyer's contractual obligation and is held while the transaction moves toward closing or termination. The agreement should identify the amount, the party who will hold it, the delivery method, and the due date.
Earnest money is not the same as a down payment. A down payment is part of the buyer's financing and cash-to-close plan. Earnest money is deposited earlier under the purchase agreement and, when the transaction closes, is generally shown as a credit in the closing accounting. The lender and settlement agent should confirm how it appears in the buyer's final cash-to-close calculation.
The contract matters more than a rule of thumb
No single amount suits every Michigan offer. The amount and timing should reflect the property, the parties' negotiations, the buyer's available funds, the other offer terms, and the risk created by the contract. A larger deposit cannot compensate for weak financing or unsuitable contingencies. Commit only funds that can be delivered on time.
Read the earnest-money paragraph together with the financing, inspection, appraisal, title, association-document, and closing provisions. A deadline can be measured from acceptance, delivery, receipt, or another defined event. Confirm how weekends, holidays, bank delays, and payment-method changes affect it. Ask your agent or attorney to explain any unclear term before signing.
Who holds the deposit in Michigan
The purchase agreement should name the payee or escrow holder. When earnest money is made payable to a Michigan real-estate broker, Michigan law and licensing rules govern the broker's custody and records. Michigan law generally requires the broker to place money payable to the broker into a separate custodial trust or escrow account within two banking days after receiving notice that the offer has been accepted by all parties. Different arrangements can apply when the contract names a title company, attorney, or other escrow holder.
Send the deposit only after you have the accepted agreement, exact payee, approved delivery method, and verified instructions. Keep the receipt or transfer confirmation and make sure the transaction record shows that the holder received the money.
Contingencies can protect a buyer only when followed
A contingency is not a general cancellation right. Its protection depends on the language in the signed agreement and the buyer's compliance with its notice, due diligence, documentation, and deadline requirements. Inspection, financing, appraisal, title, sale-of-home, or condominium-document provisions can operate differently from one agreement to another.
If a concern appears, act before the deadline. Waiting until the final day can leave too little time to obtain an inspection, lender decision, contractor opinion, legal review, or properly delivered notice. A buyer considering cancellation or renegotiation should ask their licensed real-estate professional and, when the issue is legal or disputed, a Michigan attorney to review the actual contract.
How cancellation and release differ
The transaction can terminate while the deposit remains unresolved. The escrow holder is not the person who decides the parties' legal rights. Michigan real-estate rules generally require a broker holding earnest money to disburse it according to the consummation or termination of the signed agreement. When buyer and seller both claim the funds, the broker may have to continue holding them until the parties provide an appropriate written agreement or a court resolves the dispute.
That is why cancellation notices and release documents must be handled carefully. The holder needs the direction required by the contract and applicable law before returning the money. Preserve the agreement, addenda, notices, inspection records, lender communications, and delivery confirmations.
Track the deposit through closing
Tell the lender about the deposit and keep evidence showing where the funds came from and when they were paid. Lenders may need documentation to verify assets and the transfer. Before closing, compare the deposit shown on the settlement paperwork with your receipt and ask about any discrepancy early.
- Reserve separate funds for the deposit, down payment, and closing costs in the cash plan.
- Recalculate available funds as soon as the deposit leaves your account.
- Review lender credits, seller concessions, prepaid items, and other closing amounts separately; each has its own rules and limits.
- Bring transfer evidence to the lender or settlement agent when requested.
Protect the transfer from wire fraud
Email accounts and transaction messages can be impersonated. The Consumer Financial Protection Bureau advises buyers to establish trusted contacts in advance and verify wiring instructions in person or by calling a phone number agreed to beforehand. Use only that established contact method for verification.
If instructions change, stop and verify independently. If money is sent to the wrong account, contact the bank or wire-transfer company immediately and ask about a recall, then notify the legitimate settlement professionals and report the incident through the appropriate authorities. Speed matters, but recovery is not guaranteed.
Earnest-money checklist before an offer
- Choose an amount you can deliver without disrupting required reserves or other closing funds.
- Identify the holder, payee, delivery method, deadline, and proof of receipt.
- Read every contingency and notice requirement together with the earnest-money provision.
- Confirm how the deposit will be credited if the purchase closes.
- Discuss the risk of default, cancellation, or a competing claim before signing.
- Verify all payment instructions through a trusted channel and retain the records.
Know who can answer each question
Your agent can explain the transaction process, an attorney can interpret the signed contract, and the settlement provider follows the escrow instructions and applicable law. Review the buyer-broker agreement guide, then resolve open questions before signing or sending funds.