| When you start the process of buying a | | | | Real Estate Agent and balance the need |
| home or any type of real estate, you'll | | | | to demonstrate your serious intent, |
| no doubt hear the term "earnest money | | | | against the good business practice of |
| deposit" (EMD). So what exactly is an | | | | minimizing the deposit amount. |
| EMD? | | | | The amount of the EMD is usually applied |
| An EMD becomes relevant when you are | | | | to reduce the purchase price of the |
| ready to make an offer on a property. In | | | | property or to cover closing costs, as |
| most states, your Real Estate Agent | | | | you dictate. For example, if you are |
| prepares the offer on your behalf. The | | | | purchasing a $300,000 property and you |
| offer usually takes the form of a | | | | give an EMD of $3000, then the remaining |
| written contract that is submitted to | | | | balance owned at closing is $297,000 |
| the seller by way of their agent. | | | | (plus closing costs). Alternatively, you |
| In addition to the offer document, | | | | may direct that the EMD be applied |
| sellers typically expect an EMD. An EMD | | | | toward the closing costs. |
| is a monetary deposit submitted via | | | | Once a valid contract for purchase is |
| check to demonstrate to the seller that | | | | created, an independent third-party |
| you are a serious buyer. In some regions | | | | usually holds the EMD until the purchase |
| of the country, only a photocopy of the | | | | is either completed or cancelled. At |
| check is submitted with the offer, and | | | | this point, the money belongs jointly to |
| the original check is delivered to the | | | | both the seller and the buyer. |
| appropriate entity if the offer is | | | | In cases where you make an offer that is |
| accepted. Ask your Real Estate Agent to | | | | accepted but later decide to cancel the |
| clarify how deposits are handled in your | | | | offer, the terms specified in the |
| region of the country. | | | | contract (or state law) will dictate if, |
| The check is usually made out to an | | | | and under what circumstances, the EMD is |
| independent third- party such as a Title | | | | returned to you. Be aware that you could |
| Company, Escrow Company, Real Estate | | | | loose your deposit if you do not not |
| Attorney or your Real Estate Broker. Ask | | | | comply with the terms of your contract. |
| your Real Estate Agent to clarify who | | | | Your Real Estate Agent can provide you |
| will hold the EMD. | | | | information about how EMDs are dealt |
| The amount of the EMD sellers expect | | | | with if a contract is cancelled. |
| varies by region. The EMD amount is | | | | Since state law varies by region and |
| based on the customs and practices for a | | | | practices can differ even within the |
| region, but is generally from 1% to 2% | | | | same state, be sure to consult your Real |
| of the purchase price. In a competitive | | | | Estate agent about the rules that apply |
| market place where demand exceeds the | | | | to EMDs in your region of the country. |
| supply of homes, some buyers may offer a | | | | You should also be aware that the EMD is |
| higher EMD than expected to impress the | | | | not related to any down payment that you |
| seller of their intent. In determining | | | | make toward your home loan. |
| the amount of your EMD, consult your | | | | |