Earnest Money in Tennessee: Who Holds It and When It Is Released
Earnest money in Tennessee is held in trust under state real estate rules. Who can hold the deposit, when it must be released and why the contract decides.
Earnest money in Tennessee is the good-faith deposit a buyer puts down with an offer on a home, and when a real estate broker receives it, it is treated as trust money under the Tennessee Real Estate Commission's rules. Those rules govern how a real estate broker holds and releases the deposit, while the purchase contract decides who is entitled to it if the sale falls apart.
How much earnest money Tennessee buyers put down
The Commission's escrow rule does not set an amount. The size of the deposit is negotiated between buyer and seller and written into the purchase contract, along with who will hold it and the terms for releasing it. Rule 1260-02-.09 requires that when a contract authorizes a principal broker to hold the money, the contract must clearly state the conditions for disbursement and the name and address of whoever will actually hold the funds.
The rule also bars brokers from accepting a postdated check for trust money unless the offer allows it.
Who holds earnest money in Tennessee
Under the rule, every principal broker must keep a separate escrow or trustee account for trust money, and an affiliate broker who receives a buyer's deposit must turn it over to the principal broker immediately. The deposit goes into the escrow account promptly once the offer is accepted, unless the offer sets a different deposit date. Mixing those funds with a firm's own money is prohibited.
A contract can instead name someone other than the broker, such as a title company or closing attorney, to hold the money. In that case the broker is relieved of responsibility for the funds once the named escrow agent receives them.
When earnest money can be released
The rule lists when a principal broker may properly release earnest money:
| Situation | What the rule allows |
|---|---|
| Closing | The deposit is disbursed at the closing of the transaction |
| Signed release | A separate written agreement signed by all parties with an interest in the money |
| Contract terms | A reasonable interpretation of the contract that authorizes the broker to hold it |
| Offer rejected or withdrawn | Disbursement after rejection, or withdrawal of an offer not yet accepted |
| Dispute | Filing an interpleader action, or an order from a court |
Source: Rules of the Tennessee Real Estate Commission, Rule 1260-02-.09.
When a party sends a written request for disbursement, the rule says that absent a compelling reason, the earnest money must be disbursed, interpleaded or turned over to an attorney with instructions to interplead within 21 calendar days. Interpleader puts the money in front of a court to decide who gets it.
When earnest money in Tennessee is at risk
Whether a buyer gets the deposit back if the deal ends depends on the contract, not on the escrow rule. Contingencies in the purchase agreement, such as those for financing, appraisal or inspection, set the conditions under which a buyer can walk away, and the deadlines attached to them matter. A buyer who misses a deadline or backs out for a reason the contract does not cover may lose the deposit to the seller.
Lining up financing early can reduce that risk. The Iron Hill Brief's guide to preapproval vs. prequalification explains what each step shows a seller, and its explainer on the Closing Disclosure three-day rule covers the final review before the deposit is applied at closing. This article is not legal advice; a real estate attorney can review a specific contract.
Sources
- Rules of the Tennessee Real Estate Commission, Chapter 1260-02, Rules of Conduct, Rule 1260-02-.09, "Managing Escrow or Trustee Accounts" (Secretary of State publication, September 2025 compilation; accessed Oct. 30, 2026): https://publications.tnsosfiles.com/rules/1260/1260-02.20250923.pdf