Making an Offer? Here’s How Escrow and Earnest Money Work in Rhode Island

Buying a home is an exciting milestone, but it also comes with important financial steps—including escrow and earnest money deposits. If you’re purchasing a home in Warwick, East Greenwich, Cranston, Coventry, North Kingstown, or anywhere in Rhode Island, it’s essential to understand how these deposits work, where your money goes, and what happens if a deal falls through.

At Slocum Home Team, we help buyers navigate Rhode Island’s real estate process, ensuring they understand how their deposits are handled and how to protect their investment. Let’s break down what escrow is, why earnest money matters, and what makes Rhode Island different from other states.

1. What Is Escrow?

🔹 Escrow is a financial arrangement where a third party holds funds and documents until all contract terms are met. This ensures that neither the buyer nor the seller has direct access to the funds until closing.

How Escrow Works in Rhode Island:

✔️ Earnest money checks are typically held in an escrow account by the listing brokerage rather than an independent escrow company.
✔️ The funds stay secure while the buyer completes financing, inspections, and other contingencies.
✔️ Once all conditions are met, the escrow funds are applied toward the down payment at closing.

Since Rhode Island is an attorney state, attorneys play a major role in real estate transactions, including reviewing contracts, handling title searches, and managing the closing process. However, the escrow deposit itself is often held by the listing brokerage until closing.

2. What Is Earnest Money?

Earnest money—sometimes called a “good faith deposit”—is a sum of money that a buyer submits with an offer to show they are serious about purchasing a home.

💰 It’s not the same as a down payment. Instead, it’s a deposit that gets applied to the down payment at closing or refunded under certain conditions if the sale falls through.

Why Do Sellers Want Earnest Money?

✔️ Shows commitment – Earnest money reassures sellers that the buyer is serious.
✔️ Provides security – If a buyer backs out without a valid reason, the seller may keep the deposit.
✔️ Strengthens an offer – A larger earnest money deposit can make an offer more attractive, especially in competitive situations.

3. How Much Earnest Money Should You Offer in Rhode Island?

Rhode Island does not have a fixed required amount for earnest money deposits, and the deposit amounts can vary widely.

💰 Earnest money deposits in Rhode Island typically range from $1,000 to 10% of the purchase price.

📌 In many transactions, the minimum deposit is $1,000, but:
✔️ Some sellers prefer a percentage of the purchase price (typically 1%–3% in competitive situations).
✔️ Higher earnest money deposits can make offers more attractive, especially in a multiple-offer scenario.
✔️ Fixed amounts (like $5,000 or $10,000) are sometimes used instead of percentages.

💡 Pro Tip: Work with a real estate expert like Nick Slocum or one of The Slocum Home Team’s top agents to determine the right earnest money amount for your offer.

4. What Happens to Earnest Money If a Deal Falls Through?

Earnest money is not always refundable—whether you get it back depends on the terms of your purchase agreement.

✅ When Buyers Get Their Earnest Money Back:
✔️ If the seller cancels the sale for any reason.
✔️ If the buyer is not satisfied with the results of the inspections or the seller’s response to any inspection requests.
✔️ If the appraisal comes in too low and financing falls through (on or before the mortgage contingency deadline).
✔️ If the buyer is denied a mortgage and has a financing contingency in place.

🚨 When Sellers Keep the Earnest Money:
❌ If the buyer backs out for personal reasons without a contingency.
❌ If the buyer misses contract deadlines (such as failing to submit loan approval on time).
❌ If the buyer waives contingencies and then walks away from the deal.

💡 Pro Tip: Always review your contract contingencies with a trusted real estate agent to protect your earnest money deposit.

5. How to Protect Your Earnest Money from Scams

Because real estate transactions involve large amounts of money, wire fraud scams have become a growing concern.

Avoid These Common Wire Fraud Scams:

🚫 Never wire funds based on email instructions alone. Always verify in person or by phone.
🚫 Double-check all escrow details with your agent and attorney before transferring money.
🚫 Be suspicious of last-minute changes in payment instructions.

Final Thoughts: Escrow and Earnest Money in Rhode Island

When buying a home in Warwick, East Greenwich, Cranston, or anywhere in Rhode Island, understanding escrow and earnest money is critical.

✔️ Escrow keeps your funds secure until closing.
✔️ Earnest money shows sellers you’re serious about your offer.
✔️ Understanding contingencies helps protect your deposit if the deal falls through.

🏡 Thinking about buying or selling? Let’s make sure your deposit is protected.

📞 Contact Slocum Home Team today for expert guidance on your home purchase!