Putting money on the line before you own a home can feel stressful. In Chattanooga and across Hamilton County, earnest money is a key part of a strong offer and a smart way to show sellers you are committed. When you understand how it works, you can protect your deposit, negotiate confidently, and move toward closing with fewer surprises. In this guide, you will learn the basics, local timing and handling, refund rules, and practical steps to keep your money safe. Let’s dive in.
What earnest money is
Earnest money is a good‑faith deposit you include with your offer to buy a home. It is not an extra fee. If the sale closes, the money is credited to your down payment or closing costs. Sellers like it because it shows you are serious and gives them some protection if a buyer defaults. Buyers benefit because it helps secure a contract while inspections, financing, appraisal, and title review are completed.
A simple way to visualize the amount is by percentage. In many markets, buyers offer about 1 to 3 percent of the purchase price. On a 300,000 dollar home, that is 3,000 to 9,000 dollars. In more competitive situations, some buyers put up 3 to 5 percent or more to stand out. Chattanooga practice generally tracks Tennessee norms, but the exact number varies by neighborhood, price point, and current market conditions. Your agent will help you gauge a sensible amount for your situation.
How Chattanooga handles earnest money
In most Tennessee residential sales, the deposit is held in an escrow or trust account. The holder is typically a title or escrow company, a closing attorney, or sometimes a brokerage that maintains a regulated trust account. The purchase agreement will name the escrow agent and spell out how the money is handled.
Timing matters. Your contract will state when you must deliver the deposit, often within 24 to 72 hours after the offer is accepted. Meet that deadline and keep written confirmation. The escrow holder should give you a receipt when funds are deposited into the trust account.
At closing, the escrow holder applies your earnest money to your cash to close or down payment. If the deal does not close, the contract controls whether the money is refunded or forfeited. In Tennessee, broker handling of client funds is overseen by the Tennessee Real Estate Commission, and title or escrow companies are regulated under state licensing. Rules can change, so rely on the specific terms of your contract and current state guidance.
How much to offer
The right deposit depends on the property, the neighborhood, and current demand. Use these guidelines:
- Typical range: About 1 to 3 percent of the purchase price in ordinary conditions.
- Competitive offers: Consider 3 to 5 percent if you want to stand out, but only if you are comfortable with the risk.
- Cash buyers: Sometimes offer larger deposits to strengthen terms.
Remember that more money increases your leverage but also your exposure if you default. Ask your agent to review recent local deals so you match the market without overextending yourself.
Contingencies that protect you
Contingencies give you time to verify the home, secure financing, and confirm value and title. If you follow the contract and cancel for a covered reason within the deadline, your earnest money is usually refundable.
Inspection contingency
You can order inspections, request repairs, or terminate within the inspection period. If you cancel properly before the deadline, you typically get your deposit back. Keep written notices and the inspection report.
Financing contingency
If you apply in good faith and your lender denies the loan within the stated timeframe, you can usually cancel and recover your deposit as long as you follow the contract’s notice steps. Be ready to provide your lender’s denial letter.
Appraisal contingency
If the appraisal comes in below the purchase price, many contracts let you renegotiate or cancel. The treatment of your earnest money depends on the exact language in your agreement and the timing of your notice.
Title and document review
If there are title defects that are not cured as required, you may be able to terminate and obtain a refund. Some contracts also include HOA, survey, or other document review periods that work the same way. Follow the notice instructions precisely.
When you could lose earnest money
You risk forfeiting your deposit if you do any of the following:
- Miss the deposit delivery deadline set in the contract.
- Remove contingencies and then do not close.
- Breach the contract without the seller’s consent and without a valid contingency.
- Fail to give required notices by the stated deadlines.
Many Tennessee purchase agreements include a liquidated damages clause that allows the seller to keep the earnest money if the buyer defaults, subject to the contract and applicable law. Sellers may also seek other remedies depending on the agreement. The practical outcome always comes back to what your contract says and how you perform under it.
Contracts, deadlines, and documentation
Your purchase agreement should clearly state the amount of the deposit, who holds it, when it is due, and how and when it can be released. It should also outline contingencies, deadlines, and any dispute resolution steps like mediation or arbitration.
Follow these best practices:
- Put the escrow agent’s name and delivery deadline in the offer.
- Calendar every contingency date and set reminders a few days ahead.
- Send notices in writing by the method required in the contract.
- Keep copies of all inspections, repair requests, lender letters, and termination notices.
- Ask for written confirmation when the escrow agent receives and deposits your funds.
If you need to cancel, send the correct termination notice before the deadline and include any required documentation. Refunds are usually released only after the escrow holder receives proof that you complied with the contract.
Wire fraud safety when depositing funds
Wire fraud is a real risk. Protect yourself with a few simple steps:
- Confirm wiring instructions by calling the escrow or title company using a phone number from their official website or a business card you already have, not from an email.
- Never wire to an individual or to last‑minute instructions sent by email without verifying by phone.
- If possible, use a certified check if the escrow holder allows it.
- Get a receipt and verify that your funds were deposited into the escrow or trust account.
Strategy in competitive Chattanooga markets
When homes in East Brainerd, Ooltewah, Hixson, Red Bank, or similar areas attract multiple offers, you can improve your position while managing risk.
Options to consider:
- Increase your deposit to show strength, but only to a level you are willing to risk under worst‑case scenarios.
- Shorten contingency periods to move faster, while still giving yourself enough time to complete inspections and appraisal.
- Offer seller‑friendly terms, such as partial non‑refundable deposits after a certain number of days, only after reviewing the risk with your agent and, if needed, a local attorney.
Always balance competitiveness with protection. Waiving key contingencies can put your deposit at risk if something goes wrong.
Step‑by‑step buyer checklist
Use this quick list to stay organized:
- Get a lender pre‑approval letter before you shop.
- Discuss a sensible deposit amount for the specific neighborhood and price point.
- Name the escrow or title company in your offer and include the deposit deadline.
- Deposit the funds on time and get a written receipt.
- Calendar inspection, appraisal, and loan commitment deadlines.
- Keep copies of all reports, notices, and lender communications.
- Confirm whether your earnest money will apply to closing costs or the down payment.
- Verify any wiring instructions by phone before sending funds.
New construction and your deposit
Chattanooga offers a healthy mix of spec homes and custom builds. If you are buying new construction, earnest money often follows the same basic rules, but your contract may include builder addenda with extra milestones. Clarify how the deposit works with selections, upgrades, and any construction timelines.
Ask your agent to walk through each deadline and how changes during construction could affect your deposit and closing funds. A team that works closely with builders can help you align your financing, inspections, and final walk‑throughs with the contract so your earnest money stays protected.
Where to verify details locally
If you want to double‑check a rule, a custom clause, or how escrow will handle your funds, start here:
- Greater Chattanooga REALTORS for market norms and local forms.
- Local title or escrow companies in Hamilton County to confirm deposit delivery, receipts, and wiring procedures.
- Tennessee Real Estate Commission for broker trust account rules and oversight.
- Tennessee Department of Commerce and Insurance for consumer protection resources.
- A local real estate attorney for contract enforcement questions or dispute resolution.
- Your lender for the exact documentation needed if your loan is denied.
The bottom line
Earnest money is a powerful signal that you are ready to buy. In Chattanooga, it is usually 1 to 3 percent of the purchase price, held in escrow, and credited back to you at closing. Your contract controls everything from refund rights to deadlines, so use clear contingencies, document each step, and move on time. With the right strategy, you can make a strong offer and keep your deposit safe.
Ready to craft a competitive offer and protect your earnest money from day one? Reach out to Jooma Homes to Start Your From‑Dirt‑to‑Doorstep Journey.
FAQs
How much earnest money should a Chattanooga buyer offer?
- It depends on price, neighborhood, and current competition. A common range is 1 to 3 percent of the purchase price, with higher deposits in more competitive situations.
Who holds the earnest money in Tennessee transactions?
- A title or escrow company, a closing attorney, or a brokerage trust account typically holds the deposit in an escrow or trust account until closing or cancellation.
When is earnest money refundable for Chattanooga buyers?
- It is usually refundable if you properly terminate under a contract contingency within the deadline and follow the required notice steps.
Can a seller keep my earnest money if the deal falls through?
- Possibly, if you default and the contract allows the seller to retain the deposit as liquidated damages. The outcome depends on your contract and how you performed.
What if my lender denies my loan after the contract is signed?
- If you have a financing contingency and follow the notice rules, you can usually cancel and seek a refund by providing the lender’s denial letter within the contract period.
How do I avoid wire fraud when sending my deposit?
- Confirm wiring instructions by phone using a known number, never rely on last‑minute email changes, and obtain a written receipt from the escrow holder after sending funds.
