Nope, not Ernest Money Deposit, its actually Earnest Money Deposit.  Today we look at what an earnest money deposit is and answer frequently asked questions about why its important in the real estate transaction.

 

What is a earnest money deposit (EMD)?

At its core, an earnest money deposit is a measure of how serious the buyer, and the seller are about the contract that is being negotiated.  The EMD is traditionally thought of as a measure of buying power.

 

Why is the EMD important?

From the buyer’s perspective the EMD is essentially a portion of the down payment on the house.  From the seller’s perspective it is a measure of the seriousness of the buyer.

 

Why do I need to do an EMD?

Your asking someone to take their home off the market for 25-35 days.  During that time you are vetting their home (inspection contingency), determining its true value (appraisal contingency), and finally getting the financing (if getting a mortgage) required to make the purchase.  The amount of the EMD is a measure of your seriousness as a buyer and reassures the seller that you won’t walk away or get cold feet when it matters.

 

What happens to my EMD?

Your real estate agent will deposit it with their brokerage.  It is held in an escrow account until closing.  At closing the amount of the EMD is credited back to you towards your closing costs.

 

What happens if the inspection or appraisal don’t go well, do I lose it?

No, the inspection and appraisal are contingencies in the contract that allow you to terminate the deal in the event an issue arises that the buyer and seller can not negotiate a solution to.  If the deal terminates under the terms of a contingency then the EMD is refunded back to the buyer.

 

In what situation would I lose my EMD?

Its impossible to cover all possible situations in this article, but in general as long as you stick to the timelines and contingencies within your contract you will not lose your EMD.  If, two days prior to closing you decide you no longer want to purchase the home and all of the contingencies have been satisfied then at that point you would lose your EMD.  Another situation an EMD could be lost is if it was negotiated up front that all or a portion of the EMD would be refunded to the seller in the event the buyer backed out for ANY reason.

 

What is a check?

This question is asked in jest but there is a portion of the population that has never used a check or even has them.  In that situation you can get a certified or cashier’s check from the bank.  The industry is changing quickly though and electronically deposited EMDs aren’t too far off.

 

If you have any questions about the earnest money deposit or any other part of the real estate process feel free to contact us below or give us a call.  You can get more great information over on our YouTube channel here.  Thanks for reading and have a great day!

 

 

This content is not the product of the National Association of REALTORS®, and may not reflect NAR's viewpoint or position on these topics and NAR does not verify the accuracy of the content.