What is earnest money, and what protects a buyer from losing it if the deal falls through?

Earnest money, usually 1% to 3% of the purchase price (though it can be higher in competitive markets), shows the seller that the buyer is serious. It is held in escrow by the title company or a broker. If the buyer backs out for a reason covered by a contingency — such as the home failing inspection, the appraisal coming in below the purchase price, or the buyer being unable to secure financing — they are generally entitled to a full refund. Waiving contingencies to make an offer more attractive can put the earnest money at risk if the buyer cannot complete the purchase.