Why Is Earnest Money 10% at a Real Estate Auction?

I used to set earnest money as a flat amount. It was still real money, but a flat number. Then a couple of our real estate auctions sold for a lot more than we expected, and I had to rethink it. Now it's 10% of the contract price on our everyday real estate auctions, and I hear about it every single time.

Here's how the conversation usually goes.

"Why is it so high?"

Because we're here to do business, not to collect bids from people who might change their minds.

I had a woman push back on this hard while I was showing her a home — flat out told me, "What happens if I change my mind? Earnest money should only be $1,000 on something like this." Then she kept going: "But I might change my mind the day before it closes, and I don't want to lose that kind of money." She was still going on about it when her husband finally stepped in with, "We'll talk about it later." That home sold for more than $200,000. Obviously, she wasn't there to do business — and honestly, how scary is that? A buyer telling me flat out she might walk away the day before closing, on a $200,000+ property, and thinking $1,000 should cover it.

"Where does the earnest money even go?"

It goes toward the contract price. It's not a fee, it's not a penalty up front — it's part of what you're already paying for the property.

"What if I can't close?"

Then you lose the earnest money. That's the deal.

Most of the time, people don't actually tell me why they couldn't close — it varies. But one reason does come up now and then: "I was preapproved, and now the bank won't loan me the money."

My advice is always the same — go talk to a different bank. But here's the thing: that shouldn't happen in the first place. Before you ever bid, you need to sit down with your bank and tell them exactly what you're doing — that it's an auction, that the contract is binding the moment we say sold, and that you're on a tight closing timeline. Most banks understand that once we say sold, it's a done deal. They just need to know that's what they're underwriting. Unless you happen to own half the bank, don't skip that conversation.

"My bank said it'll take a little longer than the timeline you're giving me."

That's fine. We'll sign a contract extension at closing. If your bank needs a couple extra weeks, that's a normal, workable conversation — I'd rather extend a date than force a bad outcome. Where it stops being okay is when "a little longer" turns into a lot longer. A couple extra weeks, sure. Drag it out much further than that, and now we have issues.

Our bidding terms say it plainly: this auction isn't contingent on financing, appraisal, survey, or inspections of any kind. If your finances aren't in order, we ask that you don't bid. That's not us being difficult. That's us telling you exactly what you're signing up for, before you're on the hook for it.

"I don't want to lose the money — I want to get the property."

I know. That's the whole point of the 10%. I don't want you changing your mind either.

"How many times has someone actually lost their earnest money?"

Honestly? Maybe once every three or four years. That's not bad, all things considered — for as many auctions as we run, it almost never happens. When it does, here's where the money goes: it's split 50/50 between the Auctioneer and the Seller. Not because we're trying to profit off someone's bad day, but because a canceled sale costs both of us real time and real money.

"But what if it's not my fault?"

Then you get it back. If title work comes back with a problem, you get your earnest money back. If the seller can't close on their end, you get your earnest money back. The 10% isn't a trap — it's protection for everybody doing this in good faith, and it comes back to you when the failure isn't yours.

"I still don't have 10% to put down."

Then this may not be the property for you right now, and that's okay. You can go buy a home that's listed for sale with no money down, or a $500,000 house with just $1,000 on the line. That's between you, your bank, and your bank account. But that's not how an auction works, and it's not supposed to.

"Why is it 10% and not the old flat amount?"

Because a flat number doesn't scale. A couple of our auctions sold for more than we expected, and a flat earnest money amount that felt like "a lot" on a lower sale price barely moved the needle on a higher one. Ten percent scales with what the property actually sells for, no matter what that number turns out to be.

"Why are you protecting the seller so much?"

Because my seller and I didn't just post this property on the MLS and hope. We marketed it — real money, real time, bringing real attention to it. Back-up bidders who didn't win go do something else with their money the moment the auction closes. If a winning bidder walks, we don't get any of that back — the marketing spend, the time, or the momentum. The earnest money is what makes sure the person standing at the front of the line actually intends to close.

We don't run auctions for the fun of it. We run them to help people — sellers who need a clean, certain sale, and buyers who are ready to follow through on one. The 10% is how we make sure everybody at the table is there to do business.

Happy Bidding!

Kara C. Belcher-Miller