Earnest Money & Deposits in a Commercial Purchase Agreement
The deposit is the buyer’s money at risk and the seller’s main remedy — when it goes hard decides who really controls the deal.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
Earnest money is the deposit a buyer posts to show it is serious. In commercial deals it is typically 1%–5% of the purchase price and is held by an escrow agent or title company, then applied to the price at closing.
The single most important question is when the deposit becomes non-refundable — "goes hard" — because after that point a buyer who walks usually forfeits it.
Topics to check
A buyer-friendly deal keeps the deposit fully refundable through the due-diligence period and only at risk afterward. A seller-friendly deal makes some or all of it non-refundable on signing, or releases it to the seller during the contract. Watch for "independent consideration" amounts that are non-refundable from day one.
Also check whether additional deposits are required at milestones (for example, an additional deposit when the inspection period ends) and whether those increments are also non-refundable.
Earnest money (Cornell LII Wex)A neutral escrow agent or title company should hold the deposit, with release only on closing, on a signed joint instruction, or by a court. Be cautious if the seller controls the funds, if release to the seller is automatic, or if the escrow agent can release on one party’s unilateral demand.
Interpleader and dispute language matters: if buyer and seller disagree, the escrow holder should be able to deposit the funds with a court rather than pick a side.
Most PSAs say that if the buyer defaults, the seller keeps the deposit as liquidated damages. Courts generally enforce a liquidated-damages clause only where actual damages were hard to estimate and the amount is a reasonable forecast — not a penalty. An oversized deposit framed as liquidated damages can be challenged, and a too-small one can leave a seller under-compensated.
Buyers should confirm that forfeiting the deposit is the seller’s sole remedy for a buyer default, so a failed deal cannot expose the buyer beyond the deposit.
Liquidated damages (Cornell LII Wex)Key takeaways
- Find the exact date the deposit becomes non-refundable before wiring funds.
- Insist on a neutral escrow holder and clear, joint-instruction release mechanics.
- Watch for additional deposits that also go hard at milestones.
- Liquidated-damages forfeiture is enforceable only if reasonable, not a penalty.
- Buyers: confirm deposit forfeiture is the seller’s sole remedy for buyer default.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- Liquidated-damages enforceability and deposit-forfeiture outcomes vary by state and depend on the exact clause.
- Escrow and interpleader mechanics should be confirmed with the escrow agent and counsel.
Frequently asked questions
How much earnest money is normal for a commercial deal?
There is no fixed rule; 1%–5% of the purchase price is common, but it is negotiable and varies with deal size, competition, and the length of the due-diligence period. A larger deposit signals commitment and is often used to win competitive deals.
Can I get my deposit back if I cancel during due diligence?
Usually yes, if the contract makes the deposit refundable during the due-diligence period and you terminate in writing before it ends. After the period ends — when the deposit "goes hard" — you typically forfeit it if you walk.
What is "independent consideration"?
A small portion of the deposit (sometimes $100) that is non-refundable from signing, intended to make the option to terminate binding. Confirm how much, if any, of your deposit is independent consideration.