Earnest Money Time Value Calculator

Earnest money held in escrow has opportunity cost through closing.

Earnest money

Days in escrow

Cost of capital %

Money market yield %

Opportunity cost

$12,329

Escrow holder earnings

$5,548

Loss vs money market

$12,329

How the math works

Opportunity = earnest × COC × (days/365). Escrow holder earns MMY on same funds.

$500k × 10% × (90/365) = $12,329 opportunity cost. Escrow holder earns $5,548 in the same period.

How to Use

Enter earnest money amount.
Enter days in escrow.
Enter cost of capital %.
Enter money market yield %.
Read opportunity cost.

Frequently Asked Questions

Why does earnest money have a time cost?

Funds in escrow earn interest to escrow holder (title company, attorney trust account) — NOT to buyer or seller. Buyer's funds are unavailable for other investment opportunities during escrow period (30-90 days typical residential, 60-180 days commercial). Seller has no claim to interest unless default triggers forfeit. Effectively, buyer pays opportunity cost equal to their cost of capital for escrow duration. On large commercial deals ($5-50M earnest), that's meaningful.

Can I negotiate interest on earnest?

Rarely on small residential (<$10M). Increasingly common on institutional commercial (>$25M). Structures: (1) Interest-bearing escrow account (buyer gets interest at closing unless default). (2) Money-market sweep (funds invested in T-bills or MMF during escrow). (3) Direct investment in buyer-chosen securities with escrow agent approval. Legal framework varies by state — escrow holder typically licensed to hold but not to invest aggressively.

Alternative to cash earnest?

(1) Letter of Credit (LoC): bank issues LoC for earnest amount; buyer retains cash until default triggers draw. Costs 75-200 bps of LoC amount annually. (2) Promissory note: buyer signs note for forfeitable amount; cash stays with buyer. Seller preferred cash usually. (3) Performance bond: surety bonds are rarely used in real estate earnest. LoC most common institutional alternative.

When is opportunity cost meaningful?

$5M earnest × 90 days × 10% COC = $123k. On $150M deal, that's immaterial. On $20M deal, it's 60 bps — meaningful. Longer escrow periods (due diligence) compound this. Standard residential: negligible. Institutional commercial: often negotiated. First-class acquisition teams keep track of earnest time value across pipeline and factor into offers. Amateurs don't.