Earnest Money Deposit

Real Estate Agent with Crye-Leike (Sango)

As I am sure is the case with many of those in the market for a new home, when it comes to an Earnest Money Deposit, buyer do not understand the intent.  Hopefully, the below will assist in solving the mystery.

What Is An Earnest Money Deposit?  An earnest money deposit, also known as a good faith deposit, is a specific dollar amount that a potential buyer pays to the seller in an effort to display their serious interest in a property. It's important to note that an earnest money deposit is not the same as a down payment.

The Purpose Of An Earnest Money Deposit:  

An earnest money deposit is used to secure a purchase contract, which means the buyer doesn't have to worry about the property being sold out from underneath them. Without an agreement, the seller would be free to sell the home at anytime. An earnest money deposit, however, secures the availability of the home as the potential buyer obtains an inspection, appraisal and financing for the purchase.

How Much Good Faith Is Enough?  So, just how much of an earnest money deposit is required? Truthfully, it depends on a number of factors, including the home's purchase price, your location and the standard as set by other sellers. In most cases, the earnest money deposit is negotiable and the seller will be happy in knowing that the potential buyer is serious enough to offer their money in good faith.

How An Earnest Money Deposit Is Used:  If the transaction is successful and the buyer follows through with the purchase, an earnest money deposit is refunded to the buyer or applied to closing costs. If the buyer defaults or is unable to obtain financing, the seller often has the discretion to retain the earnest money deposit as damages or as otherwise described in the purchase agreement.

Using Your Dollars And Sense:  

When it comes to an earnest money deposit, it's essential that buyers know who should receive the money and how to handle the payment. In most cases, the deposit should be made payable and presented to a licensed real estate broker, an attorney or escrow company. Your Realtor can assist in getting your earnest money deposit into the right hands. It's important to obtain a receipt, which should clearly outline the purpose of the deposit. The funds will be handled in accordance with the purchase agreement and/or as agreed upon by both the buyer and seller.

Before handing over a good faith deposit, make sure that you have faith in the person accepting your money. Potential buyers should not give an earnest money deposit directly to the seller, nor should they give it to anyone who claims to be with a brokerage firm unless their credentials are verified.

Posted by


Tim and Pam Cash
Crye-Leike Realtors
931-648-2112 (office)
931-338-1375 (cell)

The Cash Team - Making dreams come true one home at a time. Proudly serving the citizens of Clarksville and the Soldiers of Fort Campbell. To view available Clarksville properties, please visit our website at www.cashsofclarksville.com or email us at thecashteam@cashsofclarksville.comand we will run a custom search for you. Finding you and yours the perfect property in Clarksville Tennessee and surrounding areas is our goal.

Comments (4)

Andres Munar
Keystone Alliance Mortgage - State College, PA
Experience The Difference

Great post. I agree buyer usually don't understand the meaning behind how much and why. I think you did a graet job of explaining that.

Feb 02, 2011 01:26 PM
Clark Cook
1st Choice Realty of Fayetteville, LLC - Fayetteville, NC
Marketing Homes For Sale In Fayetteville NC Area

Tim & Pam, excellent explanation of EMD. It's pretty thorough and I can't think of anything else to add. You summed it up well. I always make sure my buyers understand that barring something unforseen, as discovered from a home inspection, we never make an offer on a property we don't intent to buy!

Feb 02, 2011 01:52 PM
Michelle Gibson
Hansen Real Estate Group Inc. - Wellington, FL

Time & Pam - So many buyers are confused one it comes to earnest money deposits, excellent explanation.

Feb 04, 2011 02:43 PM