What is earnest money on a land purchase contract?
Earnest money is the buyer's good-faith deposit on a signed purchase contract, and on land the contract decides whether it is refunded or forfeited. When a Virginia broker holds it and the sale is not completed, the deposit stays in escrow until all the parties agree in writing, a court orders disbursement, the funds are interpleaded into court, or the contract's clear and explicit terms release it.
A land deal has just fallen apart. Whose account is the deposit sitting in?
A buyer signs a contract on a tract, hands over a deposit, and some days later the deal is off. Before anyone argues about who deserves that money, there is a plainer question to answer first: who is holding it right now? The answer decides which rules govern it.
What earnest money is in general, and the escrow account a Virginia firm keeps it in, are defined under earnest money. On a land purchase in Virginia, the holder matters because each kind of holder answers to a different rulebook.
| Who holds it | The rule for that holder | Who answers questions about it |
|---|---|---|
| A real estate broker's firm, in its escrow account | Va. Code 54.1-2108.2: in the account by the end of the fifth business banking day after ratification, unless the principals agree otherwise in writing, and kept there until the transaction is consummated or terminated | The broker, under the contract's terms |
| An escrow agent named in the contract | Va. Code 54.1-2108.2: the broker has to see the deposit delivered to that agent by the end of the fifth business banking day after receiving it, unless the principals agree otherwise in writing | The escrow agent or an attorney |
| A settlement agent | Va. Code 55.1-1008 A: into a separate fiduciary trust account by the close of the second business day | The settlement agent or an attorney |
| The seller, directly | Neither the broker statute nor the settlement agent rule above speaks to a deposit paid straight to a seller | The contract and the parties' attorneys |
Whoever holds it, the terms sit in the signed purchase contract, one of the papers covered in what documents you need to sell land. The deposit's amount and the conditions attached to it are in that writing, not in a statute.
With a broker holding the money, the statute lists four ways it can leave escrow
A familiar assumption about a failed deal is that the broker simply decides. Virginia's statute says otherwise. When a transaction is not consummated, a broker holding the deposit keeps it in escrow until one of four things happens.
(ii) a court of competent jurisdiction orders such disbursement of the funds; (iii) the funds are successfully interpleaded into a court of competent jurisdiction pursuant to this section; or (iv) the broker releases the funds to the principal to the transaction who is entitled to receive them in accordance with the clear and explicit terms of the contract that established the earnest money deposit.
Va. Code 54.1-2108.2
The first of the four, item (i), is a written agreement among all the principals to the transaction about where the money goes. So the full list is a written agreement, a court order, an interpleader, or release under the contract's clear and explicit terms. The Real Estate Board's current escrow regulation, 18VAC135-20-181, in a section effective April 1, 2026, sends an earnest money deposit received by the principal broker, the supervising broker or the broker's associates to the same statute for how it is deposited, handled and disbursed.
Two more provisions shape what a broker actually does. A broker may send written notice that the funds will be released unless the principal who is not receiving them sends a written protest within 15 calendar days of that notice. And except where the contract's clear and explicit terms provide, "no broker shall be required to make a determination as to the party entitled to receive the earnest money deposit." A broker who complies with the section is immune from liability to the parties.
Whether it comes back is written into the contract's conditions and deadlines
Holding rules say where the money waits. They do not say who gets it. That is the contract's job, and on land the contract may have more to say, because there is more to find out about the ground.
The Consumer Financial Protection Bureau's description, written for a home purchase, draws the outline. If the contract is terminated for a permissible reason, it is returned to the buyer. If the buyer does not perform in good faith, it may be forfeited and paid to the seller. Every word that matters in those sentences, above all what counts as a permissible reason, is defined by the contract, not by the Bureau.
On a land purchase the permissible reasons can be written as a contingency or as a study window. An unfavorable soil evaluation or perc test is one example, and whether that lets a buyer walk away is worked through in whether a buyer can back out if the perc test fails. The length of the window for those checks is its own subject, covered in how long a due diligence period is, and the term itself is defined under due diligence period.
- The amount. Set by the contract. None of the Virginia rules on this page fixes an amount or a percentage.
- The conditions. Each contingency, and the notice a buyer has to give to rely on it, is a contract term.
- The deadlines. A condition that lapses without notice can change which side the contract favors. The dates are in the contract.
- The holder. The contract names who holds the deposit, which decides which of the rules above apply.
How a deposit and its contingencies run together from ratification to closing, step by step, is laid out in the Land 101 guide to earnest money and contingencies. Two instruments share vocabulary with this page and follow different rules: the installment agreement described in what a land contract is, and the fee paid for an option, covered in what an option contract on land is.
What a real estate firm may not do with a deposit while the deal is still open
When a real estate firm holds transaction money, the Real Estate Board's regulation, 18VAC135-20-181, sets limits that protect the deposit from being spent before the sale is done. Its account and commission rules are in the earnest money entry above, and its bar on taking closing expenses out of a deposit without all principals' written agreement is covered in who pays closing costs in Virginia. One more rule there reaches the form of the deposit: accepting a note, a nonnegotiable instrument or anything not readily negotiable as a deposit, without acknowledging it in the agreement, counts as improper maintenance of escrow funds.
- What goes in
- Down payments and earnest money deposits, among other listed money, are deposited into an escrow account unless all principals to the transaction have agreed otherwise in writing.
- No early commission
- Unless all principals agree in writing, a licensee is not entitled to any part of the earnest money deposit as part of the commission until the transaction has been consummated.
- No closing expenses
- Unless all principals agree in writing, expenses incidental to closing, such as appraisal, insurance and credit report fees, are not deducted from a deposit or down payment.
- A note as a deposit
- Accepting a note, a nonnegotiable instrument or anything not readily negotiable as a deposit, without acknowledging it in the agreement, counts as improper maintenance of escrow funds.
Those rules bind the firm holding the money. They say nothing about a deposit a seller holds personally, or about how a title company or attorney acting as a settlement agent runs its own trust account beyond the Chapter 10 rule above. For either of those, the contract and an attorney are where the answer comes from.
Writing an offer on land and unsure what the deposit will ride on?
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Questions this raises
Does a broker have to decide which side gets a disputed deposit?
Not unless the contract answers it. Va. Code 54.1-2108.2 says that, except under the clear and explicit terms of the contract that set up the deposit, no broker is required to determine who is entitled to it, and a broker who complies with the section is immune from liability to the parties. A real dispute over entitlement goes to the parties' attorneys and, if it comes to that, a court.
What is the 15-day notice a broker can send about a deposit?
An optional step in Va. Code 54.1-2108.2. When a transaction is not consummated, a broker may send written notice that the funds will be released unless the principal who is not receiving them sends a written protest within 15 calendar days of the notice. Whether a release after that notice is proper in a particular deal turns on the contract and the rest of the statute, and a party who disagrees takes it to an attorney.
Can a promissory note serve as the deposit instead of money?
The firm escrow rule speaks to how its acceptance is acknowledged. Under 18VAC135-20-181 D, improper maintenance of escrow funds includes accepting a note, a nonnegotiable instrument or anything not readily negotiable as a deposit without acknowledging that acceptance in the agreement. Whether a note is acceptable in a given deal, and how it is written up, is for the parties and their attorneys.
Where this page's facts come from
Every rule, office and figure above traces to one of these. Rules change; check the office before you act on one.
- Mortgage key terms: earnest money Consumer Financial Protection Bureau
- Va. Code 54.1-2108.2, earnest money deposits held by brokers Virginia General Assembly
- 18VAC135-20-181, maintenance and management of escrow accounts (effective April 1, 2026) Virginia Real Estate Board
- Va. Code 55.1-1008, settlement agent escrow and trust accounts Virginia General Assembly
- Va. Code 55.1-1002, scope of the Real Estate Settlement Agents chapter Virginia General Assembly
- Va. Code 11-2, contracts that must be in writing Virginia General Assembly