Earnest money for new construction typically runs 1% to 5% of the base purchase price, with luxury and custom builders sometimes requiring up to 10%. On a $450,000 home, that puts the deposit somewhere between $4,500 and $45,000 due shortly after you sign. The amount is higher than a resale deposit because the builder is reserving your lot, pulling permits, and committing labor and materials to a home built specifically for you.
What Drives the Amount Up or Down
Builders set the deposit as a percentage of the purchase price because their exposure scales with the price of the home and the length of the build. A production builder finishing a spec home in four to six months carries less market risk than a custom builder working on an 18-month project, and the deposit reflects that difference.
For standard single-family homes from national or regional production builders, 1% to 5% is the usual range. In tight markets where lots move quickly, 5% tends to be the floor. Luxury and custom builders often push to 10%, which on a million-dollar build is $100,000 upfront.1National Association of REALTORS®. Earnest Money in Real Estate: Refunds, Returns and Regulations
A few factors push the number in one direction or the other:
- Build timeline. Longer builds usually mean larger deposits, because the builder wants you financially committed through the entire construction period.
- Market conditions. When inventory is tight and demand is high, builders hold firm on higher minimums. Slower markets leave more room to negotiate.
- Lot premium. Corner lots, waterfront positions, or view parcels often carry a separate lot deposit on top of the base earnest money.
- Builder size. National production builders tend to use standardized deposit schedules with little flexibility. Smaller local builders are often more willing to talk about the number.
Upgrades and Customizations Add More
Personalized finishes and structural changes almost always increase your total deposit beyond the base earnest money. Custom cabinetry, upgraded flooring, and reconfigured floor plans involve materials and labor that can’t easily be repurposed if you walk away, so the builder wants that money committed before ordering.
Practices vary. Many builders ask for a separate payment covering a significant portion of the upgrade cost before work begins. On $40,000 in upgrades, that could be an additional $10,000 to $20,000 on top of the base deposit. For high-end items like custom stonework or specialty appliances ordered months in advance, some builders collect the full upgrade cost upfront.
The catch: upgrade deposits are frequently non-refundable once materials are ordered or work begins, even when the base earnest money is still protected by contingencies. Before signing off on any customizations, get the refund terms for the upgrade addendum in writing. The base contract and the upgrade paperwork can have completely different rules.
When the Deposit Is Refundable
Refundability depends entirely on the contingencies written into your purchase contract, and builder contracts are typically less buyer-friendly than resale agreements.
Financing, Inspection, and Appraisal Contingencies
In a standard resale, three contingencies protect the deposit: financing, inspection, and appraisal. Each provides a contractual exit where you can cancel and recover your earnest money. Builder contracts often limit or eliminate these protections.
A financing contingency gives you a window to secure mortgage approval; if the lender denies the loan, you get the deposit back. Some builder contracts omit financing contingencies entirely or set short deadlines that don’t line up with a 12-month build. If your financial situation changes during construction and you can no longer qualify, a missing or expired financing contingency puts the full deposit at risk.
Inspection contingencies work similarly. Builders may allow a pre-closing walkthrough or a third-party inspection near completion, but the exact contract language matters. A clause that lets you request repairs is very different from one that lets you cancel and recover your deposit based on what an inspector finds.
Appraisal contingencies protect you if the finished home appraises below the purchase price. Without one, you’re on the hook for the full contract price even if the lender won’t finance the difference. Some builders resist appraisal contingencies because new construction in developing areas can appraise conservatively. If a builder won’t include one, understand the risk before you sign.
Deposits Go Non-Refundable at Milestones
Even with contingencies in place, earnest money becomes non-refundable once certain deadlines pass. After the inspection window closes or the financing contingency is waived, the deposit transitions from protected to at risk.1National Association of REALTORS®. Earnest Money in Real Estate: Refunds, Returns and Regulations Some builders structure the deposit in phases: a smaller initial payment that’s refundable during an early review period, then a larger payment that becomes non-refundable once construction reaches a specified stage.
Watch for “time is of the essence” language. When a deadline carries that phrase, missing it by a day can put you in default and jeopardize the deposit. Without it, a missed deadline is more likely to be rescheduled without penalty.
What Happens If You Default
Walking away after contingencies have expired is expensive. Most builder contracts include a liquidated damages clause specifying that the builder keeps the earnest money if you breach. The reasoning is that actual damages from a buyer default are hard to calculate in advance, so both sides agree upfront that the deposit represents fair compensation.
In most cases, a liquidated damages provision caps the builder’s recovery at the deposit. You lose that money, but the builder can’t sue for carrying costs, lost profits, or resale shortfall beyond it. On a $500,000 home with a 5% deposit, that’s $25,000 gone, with liability capped there.
Not every contract works this way. Some reserve the builder’s right to pursue actual damages, which can exceed the deposit. Read the default provisions carefully. If the contract doesn’t clearly limit the builder’s recovery to the earnest money, ask for that language to be added.
Where Your Money Sits During Construction
In a resale transaction, earnest money goes into a neutral escrow account held by a title company or attorney until closing. New construction doesn’t always follow that pattern. Some builders require the ability to use the funds during construction rather than parking them in escrow.1National Association of REALTORS®. Earnest Money in Real Estate: Refunds, Returns and Regulations
The risk is real. If the builder files for bankruptcy mid-construction and your deposit wasn’t held in a protected escrow account, you become an unsecured creditor in the bankruptcy proceeding. That’s not a comfortable position with $20,000 or $50,000 on the line. Before handing over any money, confirm in writing whether the funds will sit in a third-party escrow account or in the builder’s operating account. If the builder insists on using the funds, you’re taking on additional risk.
How the Deposit Is Credited at Closing
Your earnest money doesn’t disappear into the transaction. At closing, it shows up as a credit on your Closing Disclosure under the amounts already paid by the borrower.2Consumer Financial Protection Bureau. 12 CFR 1026.38 – Content of Disclosures for Certain Mortgage Transactions The amount is subtracted from the total cash you owe, reducing either the down payment balance or the closing costs, or both.
If you put down $15,000 in earnest money on a $400,000 home and owe $90,000 at closing between down payment and closing costs, you’ll bring $75,000 to the table. You receive the Closing Disclosure at least three business days before settlement; review it then and confirm the deposit is reflected accurately. Catching an error before closing is far easier than fixing one afterward.
Negotiating the Deposit Structure
Buyers often assume the builder’s deposit terms are fixed. That’s not always the case, particularly when market conditions favor buyers or the builder has unsold inventory. Even in a seller’s market, asking costs nothing.
A few approaches that can work:
- Request a phased deposit. Instead of 5% at signing, propose a smaller initial payment with additional deposits tied to construction milestones. This limits your exposure in the early months when the builder hasn’t invested much in your specific home.
- Negotiate refundability windows. Even if the builder won’t lower the amount, they may agree to a longer contingency period during which the deposit remains fully refundable.
- Push for escrow protection. If the builder wants a large deposit, insist that the funds be held in a neutral escrow account rather than the builder’s operating account.
- Separate base and upgrade deposits. Get the refund terms for the base earnest money and any upgrade deposits spelled out independently, so a change of heart on finishes doesn’t cost you the base deposit.
Builders in the early phases of a new subdivision are often more flexible, because early sales help demonstrate market demand to their lenders. Buyers who commit during pre-construction, before model homes are built, sometimes have the most leverage on deposit terms.