Earnest Money and Escrow in Massachusetts: Who Holds Your Deposit, and When Can You Get It Back?

Your deposit is refundable exactly to the extent your contract says it is. In Massachusetts that usually means it is protected by contingencies — financing, inspection, and appraisal — and at risk once those contingencies expire or are waived. The deposit is not a fee and not a down payment; it is money you put at risk to make your promise credible, held by a neutral third party until closing, when it is credited toward your purchase.

Massachusetts also does something most states do not: it splits the deposit into two stages. Understanding that structure is most of understanding the risk.

How does the two-stage deposit work?

Stage one: the offer to purchase. When your offer is submitted, you include a relatively small deposit — often on the order of $1,000, sometimes more. It signals good faith at the moment the property comes off the market.

Stage two: the purchase and sale agreement. Typically about two weeks later, when the P&S is signed, the deposit is increased substantially — commonly to around 5% of the purchase price, though this is negotiated, not fixed.

That gap matters. The window between the accepted offer and the signed P&S is when the inspection happens and when the lawyers negotiate the real contract. It is also when most deals that are going to fall apart fall apart — before the large money is committed.

Who holds the money?

Not the seller. Deposits are held in escrow, usually by the listing brokerage or by one of the attorneys, in a separate client account that cannot be commingled with operating funds. Massachusetts real estate brokers are subject to specific regulations on escrow handling, and mishandling client deposit funds is among the fastest ways for a broker to lose a license.

The escrow holder is neutral. They are not the seller's advocate and cannot release the money because one party asks. In a genuine dispute, they hold it — sometimes for a long time — until the parties agree in writing or a court decides. This is worth internalizing before you find yourself in one: there is no referee who evaluates fairness. There is only the contract and, failing that, litigation over a sum that often costs more to fight over than it is worth.

What actually gets your deposit back?

Contingencies. Each one is a defined right to withdraw, on a stated deadline, with your deposit returned.

Financing contingency. The most important one for most buyers. It requires you to obtain a written loan commitment by a specific date. If you apply in good faith and the lender declines, you withdraw and recover the deposit. Miss the date without an extension and the protection lapses — the deadline is real and extensions must be in writing.

Inspection contingency. Your right to inspect and to withdraw based on what is found. Since October 2025, Massachusetts sellers cannot condition acceptance of your offer on waiving this. The inspection law guide covers the details.

Appraisal contingency. Protects you if the property appraises below the contract price, which is the scenario where a buyer would otherwise be obligated to make up the difference in cash.

Clear title. The seller has to convey good, clear, record and marketable title. If they cannot, the deposit comes back.

What if you just change your mind?

Then the money is genuinely at risk. A buyer who walks after their contingencies expire, for no contractual reason, is in breach. Standard Massachusetts P&S language commonly makes the deposit liquidated damages — meaning the seller's sole remedy is to keep it, but they do get to keep it.

Whether that language is in your agreement, and whether it caps the seller's remedy at the deposit or leaves you exposed to more, is a negotiated term. Read it. This is the single clause in the document with the largest possible dollar consequence for a buyer.

How large a deposit should you offer?

In a competitive situation, a larger deposit is a credible signal — it says you have the cash and that you are confident enough to put it at risk. It costs you nothing if you close, because it is credited to your purchase.

The honest counterweight: it is only free if you close. A large deposit is exactly the wrong move for a buyer whose financing is shaky, whose down payment is coming from a house that has not sold yet, or who is buying a condominium in a building that has not been vetted for lender warrantability. Match the deposit to your actual confidence, and let your agent tell you where the real risk sits.

General information, not legal advice.