You found the right home in Farragut, but now your agent asks, “How much earnest money do you want to offer?” It can feel like a trick question when you are trying to balance a strong offer with smart risk management. You want to win the house, protect your budget, and keep your options open if something changes. In this guide, you will learn what earnest money is, how it works in Tennessee, typical amounts in Farragut, when deposits are refundable, and how to write a competitive offer without taking on more risk than you should. Let’s dive in.
What earnest money is in Tennessee
Earnest money is a good‑faith deposit you offer with a signed contract to show you are serious about buying. The money is held in escrow and, if you close, it is applied to your down payment or closing costs.
There is no statewide rule in Tennessee that sets a required dollar amount or percentage. The size, timing, and treatment of your deposit are controlled by your purchase contract and general contract law. Standard forms used in Tennessee allow the buyer and seller to agree on the amount, name an escrow holder, and set the deadlines and procedures for delivery and release.
In simple terms, your deposit does two things:
- Signals commitment to the seller in a competitive market.
- Gives the seller limited protection if you default outside the contract’s protections.
How much to offer in Farragut
In Farragut and across Knox County, many buyers use a rule of thumb around 1 percent of the purchase price. On higher‑demand listings, deposits can rise into the 1 to 2 percent range, and some buyers may go higher to stand out. The right amount for you depends on the home, the level of competition, and your comfort with risk.
Factors to weigh when choosing your amount:
- Competition level for the property in Farragut.
- Your risk tolerance if a deal falls apart outside your contingencies.
- Your available funds for closing and moving.
- Seller expectations and what is common in recent comparable offers.
Example deposit scenarios
These are illustrative examples to help you think through options:
- $250,000 listing: a typical deposit might be $2,000 to $5,000 (about 0.8 to 2 percent).
- $400,000 listing in Farragut: 1 percent is $4,000; many offers fall between $3,000 and $8,000 depending on activity.
- Multiple‑offer, “hot” listing: buyers sometimes go $8,000 to $15,000 or higher, or they combine a solid deposit with other strong terms like a shorter inspection period.
Tip: Aim for meaningful, not painful. The deposit should be large enough to show you are committed, but not so large that you cannot pivot if a valid contingency triggers a termination.
When your earnest money is refundable
Refundability is contract‑driven. You protect your deposit by using contingencies and following the contract’s deadlines and notice rules exactly. Common protections include the inspection contingency, financing contingency, appraisal clause, and title provisions.
Inspection contingency
Most Tennessee purchase agreements include an inspection period. If you terminate within that period and follow the required notice steps in the contract, you typically receive your earnest money back.
Financing contingency
If you apply for your loan in good faith but cannot obtain the agreed financing, you can usually terminate and recover your deposit if you meet the contract’s deadline and provide proper written notice.
Appraisal contingency
If the appraisal comes in below the purchase price and your contract gives you an option to renegotiate or terminate, you may cancel within the set timeframe and retain your earnest money.
Title or seller obligations
If the seller cannot deliver marketable title as required or fails to meet other contractual obligations, you may be entitled to a refund or other remedies as specified in the contract.
Important: Contracts in Tennessee rely on strict deadlines and written notice. Missing a date or failing to deliver the right notice to the right party can jeopardize your refund rights. Ask your agent to track every deadline and confirm delivery in writing.
What happens if you terminate outside protections
If you default without an applicable contractual right to terminate, the seller may have remedies. Many contracts allow the seller to keep your earnest money as liquidated damages if they choose that path. Depending on the contract, a seller could also pursue other legal remedies. The exact outcome depends on your agreement and the facts of the situation.
Who holds your earnest money
Your contract will name the escrow holder. In Tennessee, that is often the listing broker’s escrow account, a title company, or a closing attorney. Whoever holds the funds must follow escrow rules and handle money according to the written instructions in your contract.
When the deposit is due
Most contracts require delivery within a set number of days after mutual acceptance, often within 1 to 3 business days, though timing is negotiable. Some deals call for immediate delivery. Make sure the deadline is clear and meet it.
Disbursement at closing
At closing, your escrow holder releases the funds according to the settlement statement. Your earnest money is typically credited toward your down payment or closing costs.
If a dispute arises
If both parties agree, funds can be released with signed instructions. If there is a disagreement, the money usually stays in escrow until the parties reach a settlement, use the dispute process in the contract, or obtain a court order.
Protect your deposit and stay competitive in Farragut
You can write a strong offer without taking on unnecessary risk. Use these practical moves:
- Use a meaningful deposit, not an extreme one. For a $400,000 home, 1 percent ($4,000) is often persuasive. If you prefer to stay closer to $3,000, pair it with other strong terms.
- Shorten, do not eliminate, contingencies. A 5 to 7 day inspection period can be competitive while still protecting you.
- Start underwriting and appraisal steps early. Show you are organized without giving up protections.
- Choose a reputable escrow holder. Naming a local title company or closing attorney in the contract can streamline the process.
- Follow notice rules to the letter. Keep everything in writing and delivered on time to preserve your rights.
- Consider non‑refundable language only with caution. If a deposit becomes non‑refundable after a deadline, understand the risk and ask for professional review before you agree.
Local offer scenarios
- Scenario A, balanced: $375,000 Farragut home, earnest money of $3,750 (1 percent), 10 day inspection, financing approval in 21 to 30 days. Full protections in place.
- Scenario B, competitive: $450,000 listing with multiple offers, earnest money of $9,000 (2 percent), 5 to 7 day inspection, financing contingency kept but lender fully engaged from day one.
- Scenario C, aggressive: Bidding war situation, $20,000 deposit with very short or limited inspection and language making the deposit non‑refundable after inspection ends. Higher risk, only consider if you are fully comfortable.
Buyer checklist for earnest money
Use this quick plan when you are ready to write:
- Ask your agent what deposit sizes won recent Farragut offers on similar homes.
- Decide how much you can post without straining closing funds.
- Confirm the escrow holder in the contract and the exact payment deadline.
- Keep inspection, appraisal, and financing timelines front and center.
- Deliver any termination or repair notices in writing and on time.
- Seek attorney review for unusual terms, like non‑refundable deposits or modified liquidated damages.
Common pitfalls to avoid
- Going too small or too large. A very small deposit can weaken your offer. An overly large deposit can add stress or risk if plans change.
- Missing a deadline. Even one late day can affect your refund rights.
- Vague escrow details. Make sure the escrow holder and delivery timing are clearly spelled out.
- Waiving contingencies without a plan. If you remove protections, be sure you can live with that risk.
Work with a local pro
Earnest money strategy is not one size fits all. Farragut’s market can shift month to month, and sellers notice when a buyer’s contract is clean, complete, and on time. A local pro will help you size the deposit, set realistic timelines, and keep your rights intact from contract to closing.
If you are planning a move in Farragut or anywhere in Knox County, let’s build a smart offer strategy that fits your budget and goals. Connect with Tyler Owens to get started.
FAQs
What is earnest money in a Tennessee home purchase?
- It is a good‑faith deposit held in escrow that shows you are serious about buying, and it is applied to your down payment or closing costs at closing.
How much earnest money is typical in Farragut, TN?
- Many buyers aim for around 1 percent of the price, with 1 to 2 percent common on competitive listings. Exact amounts depend on the home and market activity.
Is earnest money refundable if I cancel after inspection?
- Usually yes if your contract includes an inspection contingency and you terminate within the deadline using the required written notice procedures.
Who holds the earnest money in Tennessee?
- The contract names the escrow holder, often a title company, closing attorney, or a broker’s escrow account that follows escrow rules.
What happens if I miss a contract deadline?
- You can lose certain rights, including refund rights. Tennessee contracts rely on strict timelines and written notices, so stay on schedule.
Can the seller keep my deposit if I default?
- If you terminate outside your contractual rights, the seller may elect remedies that can include keeping the earnest money as liquidated damages, depending on the contract.
When is the earnest money due after my offer is accepted?
- Most contracts require delivery within a short window, often 1 to 3 business days after acceptance, though timing is negotiable and must be stated in the contract.
