Offers to purchase a home are most often accompanied by a check, a.k.a. the “Earnest Money Deposit” or “EMD”. The reason for this deposit is for buyers to “put your money where your mouth is”. It’s another way of saying that you’re “earnestly” intending to purchase the property.

Now the amount of the deposit is a different story. The larger the deposit, the more the seller is convinced that you really want the property. When the market is “hot” and there are multiple offers on the table, the deposits are usually larger than in today’s buyer market.

In a buyer’s market, the deposit can often be 1% of the sales price or as little as a couple thousand dollars, but you have to be careful. If it’s a must-have property, you may elect to increase your earnest money to show that you are a serious buyer. On the other hand, you don’t want to put down too much of a deposit because if you have a change of heart, you may risk losing it.

Once the contract is ratified, the earnest money deposit is put into an escrow account (sometimes interest bearing depending on closing date) at one of the listing or selling real estate brokerages. Most deals close and the earnest money funds are applied towards the buyer’s down payment and/or closing costs. If these isn’t a required down payment and closing costs are covered by credits (such as a seller subsidy or buyer agent rebate) sometimes the buyer will receive a check back from the title company for the earnest money with interest, if any.

Some sellers think that if the deal falls through, the earnest money deposit is automatically forfeited. Some buyers think that if the deal doesn’t close, they automatically get their deposit back. Needless to say, neither one is always true. Even when the failure to close is the buyer’s fault, the seller doesn’t have a “right” to the deposit as a way to punish the buyer. Nor does the buyer automatically get the entire deposit back, even when they are not at fault. It depends whether or not their are any contingencies still active and also whether they are reason for default.

If something goes wrong early in the deal, the seller may choose to return the deposit without a problem. However, if things go smoothly later in the transaction, both parties usually use common sense and negotiate a fair solution. 

99% of the time, an issue regarding the EMD is routine for a qualified professional real estate agent. The issue might be new for you, but many agents have run into an EMD situation in the past and should know how to resolve the issue fairly.

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