"What's an Earnest Money Deposit?"

"What's an earnest money deposit?"

An earnest money deposit is the money that is placed in escrow to guarantee your contract. When we sit down to write an offer on a home we will also write an earnest money deposit check. The check will be written to your Realtor's brokerage in most cases. In some instances it may be written to an escrow agent (usually a title company) or in rare cases to the listing agents brokerage. The check will be held until your contract is accepted at which time it will be deposited.

The escrow agent/brokerage does not release the deposit unless one of the following things happen:

1) The buyer goes to settlement at which time the earnest money deposit is applied to down payment or closing costs
2) The buyer voids the contract utilizing one of their contingencies or the buyer and seller agree to terminate the contract and disburse the earnest money in whole or in part to the buyer
3) A court orders the money distributed

Earnest money deposits motivate the buyer to make a serious offer and then follow through with settlement. Without a financial stake the buyer may not feel motivated to perform to the terms of the contract as there is no recourse for the seller other than legal action. Contracts today provide the buyer with definitive contingencies that allow them to terminate the contract for specific reasons and entitles them to receive their earnest money back in full.

Earnest money deposits tend to range from 1-3% of the sales price in DC, MD & VA