Dispositions

How to secure buyer earnest money for an assignment

Securing a buyer's earnest money deposit for an assignment contract is a critical step to ensure his or her commitment and protect your wholesale deal. This money serves as a good faith gesture that shows the buyer is serious about closing.

November 9, 2026 · 4 min read

The purpose of earnest money in an assignment

Earnest money, often called an earnest money deposit (EMD), is a sum of money a buyer puts down to show his or her serious intent to purchase a property. In an assignment deal, the end buyer pays this EMD to demonstrate commitment to the purchase agreement you are assigning.

For you, the wholesaler, the EMD serves as a protection. If the end buyer defaults on the purchase agreement without a valid contingency, you may be able to retain this money. This helps cover your time and effort, and any costs incurred.

It also acts as a filter. A serious cash buyer will understand and expect to provide an EMD. Those who balk at it might not be truly committed or financially capable. It is a fundamental part of a solid disposition strategy.

Determining the right earnest money amount

There is no set rule for the EMD amount, but it typically ranges from 1% to 5% of the purchase price, or a flat fee like a hypothetical $1,000 to $5,000. It depends on your local market, the deal size, and how hot the buyer's market is for your type of property.

You want an amount that is substantial enough to make a buyer think twice before walking away, but not so high that it deters legitimate buyers. Consider the size of your assignment fee as well. A larger EMD can offer better protection if your fee is significant.

Discuss the EMD amount clearly with your potential cash buyer early in the disposition process. It should be part of your initial conversation when you present the deal. Transparency avoids surprises later and helps qualify your buyers.

Who holds the earnest money deposit?

The EMD should always be held by a neutral third party, not by you or the buyer. A title company or an escrow agent is the standard and safest choice. They are responsible for holding the funds in a separate escrow account until closing.

Instruct your buyer to wire the EMD directly to the title company once the assignment contract is signed. Never accept cash or a personal check directly. This ensures compliance, professionalism, and protects you from handling client funds, which can have legal implications.

Ensure the title company acknowledges receipt of the funds. A confirmation email or receipt from the title company provides proof that the EMD has been secured. This documentation is important for your records and for the seller, if he or she requests proof of funds.

The earnest money clause in the assignment contract

Your assignment contract must clearly detail the earnest money terms. This includes the exact amount, the deadline for payment, and the name of the escrow agent holding the funds. It should also specify what happens to the EMD if the buyer defaults or if the deal falls through due to a valid contingency.

Spell out the conditions under which the EMD is refundable to the buyer. Typically, if the buyer terminates within an inspection period or due to a title issue, the EMD is returned. If the buyer defaults without a valid reason, the EMD is forfeited to you or the seller, depending on your agreement.

Consult with a real estate attorney in your state to draft or review your assignment contracts. This helps ensure your EMD clauses are legally sound and protect your interests. This is not legal advice, always seek professional counsel.

What happens if the buyer defaults?

If the end buyer defaults on the purchase agreement, meaning he or she fails to close without exercising a valid contingency, the EMD is typically forfeited. The contract should clearly state this outcome.

The forfeited EMD may go to you, the wholesaler, as liquidated damages, or it might be split between you and the original seller, depending on the terms of your assignment agreement and the original purchase agreement. Your agreements should anticipate this scenario.

Forfeited EMD helps compensate you for your time and the lost opportunity to assign the contract to another buyer. It mitigates your risk and ensures that serious buyers are engaging with your deals. Understanding this process is key to successful wholesaling, as discussed in /learn/wholesaling-vs-flipping-a-lead.

Questions people ask

How much earnest money is enough for an assignment deal?

It varies, but typically 1-5% of the purchase price, or a flat amount like a hypothetical $1,000 to $5,000. It should be enough to show commitment but not deter serious buyers.

Who should hold the earnest money for an assignment?

A neutral third party, such as a title company or escrow agent. Never you or the buyer directly, to ensure professionalism and legal compliance.

What if the buyer doesn't pay the earnest money?

If the buyer fails to provide the EMD by the agreed deadline, he or she is in default of the assignment contract. You should then move on to another buyer and consider the contract with the defaulting buyer terminated.