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What’s an Earnest Money Deposit?

The earnest money deposit is not your down payment but when you complete the purchase of your new home, the money is applied towards your down payment or cosing costs. A deposit is required with the submission of an offer. The amount of the deposit isn’t set and is negotiable.

During the process of writing the offer, one of the things you’ll need to decide is how large a deposit you’d like to make. You want the deposit to be large enough to get the sellers attention. If your offer included a $100 EMD check, the seller would not take it seriously. If you have to compete for a house, a larger deposit may impress a seller enough so they will accept your offer instead of someone else’s, even if your competition is offering the same price or slightly more.

What amount is required? There is no rule of thumb but I’ll give a couple of recent transaction examples. On a sale of about $300,000 people have written checks for $1,500 – $4,000. On a sale of $700K-$800K the checks have been $7,000 to $15,000. I once had a buyer write a $27,000 check on a $600,000 home because he wanted to make sure his offer was noticed. He did win in competition for that house.

Several contingencies may need to be removed before your money is truly at risk and your agent should make you aware of those deadlines. Contingencies may include:

• Financing
• Appraisal
• Home Owners Association or Condominium Document Review
• Home Inspection
• and possibly more

Before the contigencies are removed, you can ask for things to be repaired or decide not to buy the home and get your deposit back. Once the contingencies are removed you’ll be more confidant in the home you’ve chosen. When you go to settlement, your earnest money deposit is given back to you in the form of a credit or a check.