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