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