EMD: The Earnest Money Deposit

As a buyer:

When you are submitting an offer to the seller, your agent will be compiling a complete offer package. This package will include an Earnest Money Deposit. Is an Earnest Money Deposit required?


The Earnest Money Deposit is required in all transactions whether it’s a cash offer, FHA, VA or conventional.

The check is to be made out to ESCROW and is used to open escrow. The Earnest Money Deposit is typically 1-2% of the purchase price. HOWEVER! If the home that you are placing the offer on is THE house, then I suggest increasing the amount. What does that do? It shows the seller’s that you are a dedicated buyer, that you really want the home.

Don’t panic. The seller cannot rush to the bank and cash the check. The check is to be held in the escrow account until the close of escrow.

There are a few exceptions to that rule. If you make it through escrow, inspections are complete, and loan requirements have been met with contingencies removed only then does the seller have the right to keep the Earnest Money Deposit. In order for the seller to keep the check at that point, you the buyer must be the one who is backing out of the transaction. These exceptions are very rare. There is a lot that goes into the process before this point. You should know by the home inspection whether or not this is the right home for you. If you find an issue with the home that you cannot move forward, at that point you should and must cancel escrow. If your loan cannot get approved, cancel escrow. Whatever you do, DO NOT sign the contingency removal form until you are 120% positive this is it.

In the end, the Earnest Money Deposit goes towards your down payment on the home. If you have a VA loan, then the money will be returned to you at the close of escrow.


As a Seller:

Agents who submit offers to you should include a copy of a check that is made out to escrow that matches the EMD amount on the offer. The higher the amount, the more committed the buyer. As a seller’s agent, the offers that fell through were under 1%. The buyers were not serious. Having escrow fall through can be disappointing. There are signs to look for in the initial offer to see if this buyer is the right one.

Sometimes the highest offer isn’t the best offer.

There are several factors that go into deciding which offer will be best for you. The amount of the Earnest Money Deposit is one of those factors.

If escrow closes, yes you will get the check! The final amount paid to you after everything is calculated will include that Earnest Money Deposit.

What’s important about the EMD is that it shows the buyer is committed and serious. They are willing to lose that deposit in the event escrow falls through after all contingencies are removed.

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