Earnest money for commercial property generally runs between 1% and 10% of the purchase price, with most deals settling in the 1% to 5% range.1Cornell Law School. Earnest Payment There is no legally mandated figure. The actual number is negotiated between buyer and seller, and it moves with the size of the deal, the type of property, how competitive the market is, and how much leverage each side brings to the table.
How Much by Deal Size
The larger the purchase price, the smaller the percentage tends to be. A small slice of a big number still puts real dollars at risk, which is what the seller cares about.
- Under $1 million: deposits often land at 5% to 10%. On a $500,000 retail property, a seller may ask for $25,000 to $50,000.
- $1 million to $10 million: 2% to 5% is common. A $5 million office building at 5% works out to a $250,000 deposit.
- Over $20 million: percentages often drop to 1% or 2%. On a $30 million asset, even 1% is $300,000 at stake.
Staged Deposits
Many commercial contracts split the deposit into two or more installments. A common structure: the buyer wires 1% within a few business days of signing, then delivers an additional amount bringing the total to 3% or 5% once the due diligence period expires and the buyer elects to move forward. Staging limits the buyer’s early exposure while giving the seller increasing security as the deal progresses.
What Moves the Number Up or Down
Market Conditions
In a competitive market with multiple bidders, buyers often offer larger deposits, sometimes with a shorter due diligence window or a non-refundable portion, to stand out. When the market favors buyers, deposits settle at the lower end because sellers have less leverage to demand more.
Property Type
Stabilized properties with existing tenants and predictable cash flows, such as fully leased industrial or office buildings, tend to command standard percentages. Raw land and development deals often require larger deposits because the buyer may need months or years to secure zoning approvals, entitlements, and permits, tying up the seller’s property for a long stretch.
Length of the Due Diligence Period
A buyer requesting a 60- or 90-day inspection window will usually face pressure to put up more money. From the seller’s perspective, a long inspection means the property sits off the market longer, and a bigger deposit compensates for that risk. Shorter timelines give buyers room to negotiate lower deposits.
Buyer Reputation and Financials
Institutional investors with track records and verifiable financials can often negotiate lower deposits than first-time commercial buyers or smaller operators. Sellers use the deposit as a screening tool. A buyer who cannot produce the money quickly may not have the resources to close.
How the Deposit Is Held
Once both sides agree, the funds go into a restricted escrow account managed by a neutral third party, usually a title company or a law firm’s escrow department. The purchase and sale agreement names the specific entity. Neither party can touch the money while the deal is pending.
Buyers generally have one to three business days after signing the contract to wire the deposit. Missing that deadline can constitute a default and give the seller the right to terminate. Most commercial transactions use wire transfers exclusively; personal checks are rarely accepted.
When the amount is large or the closing timeline stretches over several months, the money often sits in an interest-bearing account. The purchase agreement should say who gets the interest. Under most deals, interest follows the principal, so it goes to whoever ultimately receives the deposit. If the deal closes, the interest is credited to the buyer along with the deposit itself. The default rule varies by jurisdiction, so address this in the contract.
Guarding Against Wire Fraud
Wire fraud aimed at real estate transactions is a serious threat. Criminals intercept email, impersonate title companies or attorneys, and send altered wiring instructions that redirect funds. The FBI reported that business email compromise schemes, which include real estate wire fraud, resulted in over $2.4 billion in reported losses in a single year.2FBI. Business Email Compromise and Real Estate Wire Fraud Report
Before wiring anything:
- Verify wiring instructions by phone, using a number you already have on file, not one from the email carrying the instructions.
- Treat any emailed change to wiring instructions as a red flag. Confirm directly with the escrow agent through a separate channel.
- Check the full sender address. Fraudsters use lookalike domains that change a single character.
- After wiring, call the escrow agent to confirm the funds hit the correct account.
What Happens to the Deposit at Closing
If the deal closes, the entire deposit plus any accrued interest is credited toward the purchase price.1Cornell Law School. Earnest Payment Put down $100,000 on a $2 million property, and you bring $1.9 million to the closing table, minus whatever your lender finances. Most contracts let the buyer direct the deposit toward the down payment, closing costs, or other settlement charges.
When You Get the Deposit Back
During Due Diligence
A buyer who terminates within the due diligence period is generally entitled to a full refund. This is your window to inspect the property, review financials, assess environmental risk, confirm zoning, and line up financing. If any of those turns up a problem, you can walk. The purchase agreement sets the exact length of the period and the notice requirements for termination.
After Contingencies Are Waived
Once the due diligence period expires and the buyer waives contingencies, the deposit typically becomes non-refundable. If the buyer then fails to close, the contract usually treats the earnest money as liquidated damages. The seller keeps the deposit as predetermined compensation without having to prove specific losses in court. The seller gets certainty, and the buyer’s maximum exposure is capped at the deposit amount.
Liquidated damages clauses are not automatically enforceable. Courts in most jurisdictions uphold them only if the amount was a reasonable estimate of the seller’s anticipated damages at the time the contract was signed. If the deposit is grossly out of line with likely harm, a court may refuse to enforce it as a penalty.
Specific Performance
Some commercial contracts let the seller pursue specific performance, a court order requiring the buyer to complete the purchase, rather than just keeping the deposit. Real property is treated as unique under the law, which makes courts more willing to grant specific performance in real estate disputes than in most contract cases. Whether the seller can pursue this alongside or instead of liquidated damages depends on the drafting. If the agreement designates liquidated damages as the exclusive remedy, specific performance is off the table. If the contract is silent or preserves both options, the seller can choose.
When Both Sides Claim the Money
If a deal falls apart and both parties demand the deposit, the escrow agent is stuck. The agent owes duties to both sides and cannot pick one. When competing demands come in, the money often ends up in court through an interpleader action, where the escrow agent asks a judge to decide who takes it.3Cornell Law School. Federal Rules of Civil Procedure Rule 22 – Interpleader The escrow agent is entitled to recover attorney’s fees and court costs from the escrowed funds before turning the rest over, which means both buyer and seller lose money no matter who prevails. Many commercial contracts include mediation or arbitration clauses specifically to head off this outcome. Read the dispute resolution provisions before you sign.
Tax Points Worth Flagging
A forfeited earnest money deposit on a personal residence is a non-deductible personal expense.4Internal Revenue Service. Publication 530 – Tax Information for Homeowners Commercial property is different. Because a commercial purchase is entered into for profit, a forfeited deposit may qualify as a deductible loss, though the treatment depends on the facts. For the seller, a retained deposit is generally taxable income in the year received. Given the dollar figures involved, run this by a tax advisor before making assumptions.
If you are buying a replacement property in a like-kind exchange under IRC Section 1031, coordinate the deposit with your qualified intermediary before you wire anything. You cannot have direct control of exchange proceeds at any point. The intermediary can pay the earnest money on your behalf when you identify a replacement property. If you pay it out of pocket to move fast, the intermediary can reimburse you, but only if the payment happened after the exchange agreement was already in place. Paying the deposit before signing the exchange agreement creates a constructive receipt problem that could disqualify the exchange. The 45-day identification window and 180-day closing window still apply.