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What Happens to the Earnest Money on My Contract?

Managing Real Estate Broker with Platinum Properties- (931)771-9070 TN Broker: 208698

What Happens to the Earnest Money I Submitted?


MoneyMost buyers ask if the check will be cashed or held until closing? Buyers want to know if they get the money back if they change their minds. They want to know if the offer doesn't go through will they get their money back. What if the seller doesn't fulfill their part of the agreement?


These are valid questions and the agent should answer them according to state laws and rules. In Tennessee, there are strict rules as to what happens to earnest money and how it is to be disbursed. Where does the earnest money go?


First you must understand what earnest money is. It is a show of good faith to the seller. In other words putting your money where you mouth is. An offer with substantial earnest money gets the attention of the seller. It shows that the buyer has skin in the game and has some financial strength and is taking a risk, too.


State law in Tennessee says if the broker holds the money it must be deposited promptly into the broker's escrow or trust account. This account is set up solely to hold client and customer money. It can be held by either the listing broker or the selling broker. Another practice that is allowed is that the escrow company, title company or closing attorney may hold the money in lieu of the broker. They deposit it into their company's trust account.

Whichever way it is done, the buyer and seller must decide and must be stated and  agreed on the sales contract. Borkers prefer a cashiers check or personal check rather than cash. If the buyer is getting financing, underwriters do not like cash payments and it can cause a problem.


The buyer and seller can decide to move forward with no earnest money. They can agree to delay the payment of the money. They can agree for the seller to receive it as a non-refundable deposit. Make sure the terms are clearly spelled out in the purchase and sale agreement. 


Once the check is turned over by the buyer it will be deposited in the escrow account unless otherwise agreed by the buyer and seller in writing. The check must be good funds. If it should bounce, the seller is to be notified. The buyer is given a chance to make it good by presenting certified funds. If this doesn't happen, according to Tennessee contracts the seller can opt to terminate the contract or move forward without it. 


Once the money is in escrow the only ways to get it out are as follows:

  • The contract closes and the check is credited to the buyer's sale at closing.
  • One of the parties breaches the contract. If the buyer breaches the earnest money will default to the seller. If the seller defaults, the buyer will get his earnest money back.
  • The parties can mutually agree to terminate the contract. The money can be divided upon the wishes of the parties.
  • The buyer's contract was contingent on financing, inspection, appraisal or other terms and buyers acting in good faith was unable to perform.
  • If the buyer and seller cannot agree as to the release of earnest money, the broker is able to file an Interpleader Action with the court to let a judge decide. 

If the contract closes, the earnest money will be given as a credit to the cost of sale and purchase price in the buyer's behalf. If all the money is not needed, the balance is return to the buyer as a refund.


For real estate services in Clarksville, TN contact The Real Debbie Reynolds at 931-320-6730.



Posted by

 Centruy 21 Platinum Properties2130 Wilma Rudolph Blvd.

Clarksville, TN 37040

When you need Real Estate services in Clarksville TN

                  it would be my pleasure to assist you!                             

Debbie Reynolds
"The Real Debbie Reynolds"

Check out all Clarksville TN Real Estate on My Website

931-771-9070 Office | 931-320-6730 Cell

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Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

It’s always good to explain these details to buyers so there’s no accidents or misunderstandings or missteps.

Sajy Mathew

Nov 20, 2018 11:04 PM
James (Jim) Lawson, DBA
DomainRealty.com LLC - Bonita Springs, FL
Broker Associate, RSPS, BPOR, HI & PE

Great overview Debbie! However when I was investing in RE I always hated putting down large amounts of EMD. Got to the point where I offered a copy of my credit report to try to shrink the EMD. Did not work too often but on rare occasions did. Another point...it's always wise to check your state regulator's role/power if the EMD is placed in an attorney's trust account. The agency may have little or no muscle in trying to retrieve the funds should there be a dispute.  

Nov 20, 2018 11:42 PM
Muhammad Mushtaq
Weichert, Realtors® - SBA Group - Fall River, MA

Well crafted blog. These types of articles should be made part of contacts given to buyers or at least agents should get trained to explain it in order to avoid future conflicts.

Nov 21, 2018 02:11 AM
Kat Palmiotti
eXp Commercial, Referral Divison - Kalispell, MT
Helping your Montana dreams take root

This is a very helpful post to those who want to know what is going on with the deposit. I get this question also. It's also very confusing for those who are using a 100% financing option. Why do I have to put down anything? "Skin in the game" is exactly the way I describe it.


Nov 21, 2018 02:48 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning Debbie Reynolds,

Excellent topic as buyers and sellers always have questions about the earnest money and each state is so different. We have specific guidelines and addendum's to sign that pertain the earnest money. It's up to us to explain how the earnest money works in a contract and the process. Congrats on a well deserved featured post.

Nov 21, 2018 04:20 AM
Stella Barbour
NoVa Brokers LLC - Vienna, VA
Principal Broker, Serving Virginia and Maryland

Great information. I work with a lot of first time home buyers and this is always the biggest concern.  

Nov 21, 2018 05:45 AM
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of the Manchester NH's area Leading Agents

Congratulations on the feature Debbie Reynolds  . A great topic and a questions often asked  I like to go over this before signing the contract and make sure the buyer understands 

Nov 21, 2018 06:12 AM
Dorte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Debbie,

Yes, everything can be negotiated, but my preference is to have my broker hold it, so I tell people to make sure they have enough in their checking account to cover it. 

Nov 21, 2018 07:28 AM
Bruce Kunz
C21 Solid Gold Realty, Brick, NJ, 732-920-2100 - Howell, NJ
REALTOR®, Brick & Howell NJ Homes for Sale

Thanks for sharing this Debbie Reynolds. This is a thorough explanation of what Ernest money is and 'how it works' and answers probably the most common question from buyers.


Nov 21, 2018 07:47 AM
Elisa Uribe Realtor #01427070
Golden Gate Sotheby's International - Berkeley, CA
Opening the Doors to California Homes -East Bay

Good Morning Debbie! This is a very good explanation about Earnest Money, especially for First time home buyers. Thank you for sharing this!

Nov 21, 2018 08:13 AM
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Meaningful & relevant subject matter and has to be talked about. Furthermore, the agent, if they are worthy must know how to wield this ...case in point.

Nov 21, 2018 11:00 AM
Debe Maxwell, CRS
Savvy + Company (704) 491-3310 - Charlotte, NC

I got a call once from an agent who had requested that the EMD be held at my firm (it was an independent who didn't want to be responsible for a Trust account). Anyway, she was begging and pleading with me to help her. Evidently, her buyer wasn't informed that the EMD check would be deposited - they thought we were just 'holding' the check. 

First of all, exactly what skin would that be having in the game? Anyone can write a check! Second of all, the agent didn't properly prepare her buyer regarding the handling of the EMD check...from start to finish. 

Every buyer and every new agent should read this post, Debbie! Great information for BOTH! 

Nov 21, 2018 11:37 AM
Bob Betel
Allstar Home Mortgage, Inc. - Sweetwater, TN
President, Allstar Home Mortgage, Inc

Excellent information for all buyers. From the mortgage broker side, we always need to have proof that the check has cleared the buyer's account by getting an up to date bank statement.

Nov 21, 2018 12:52 PM
Kevin Mackessy
Blue Olive Properties, LLC - Highlands Ranch, CO
Dedicated. Qualified. Local.

We've had a new common underhanded strategy being deployed in the Denver market.  Some agents will fail to drop off earnest money and then try to back out of the contract before they submit anything.

Nov 21, 2018 02:19 PM
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

This is a great overview of the earnest money deposit, especially for first-timers as, especially here, it is not a small sum which they have to come up with. If they abide by the contract it will not be at risk.

Nov 21, 2018 03:33 PM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hi Debbie

This is excellent information for buyers, and some agents! Buyers often ask about the EMD and how it works and this explains it so well. Obviously there are some differences in terms of where you are located.


Nov 22, 2018 07:53 AM
Roy Kelley
Retired - Gaithersburg, MD

Congratulations, Debbie, on your feature recognition.

This is great information to share with prospective home buyers and home sellers.

Nov 22, 2018 08:57 AM
Cynthia "Cyndi" Cook
Keller Williams Realty Alabama Gulf Coast - Orange Beach, AL
Residential Real Estate Sales and Vacation Rentals

Hi Debbie! I've always liked being direct with my clients and give them all the information. Great read, I hope you had a great Thanksgiving. 

Nov 23, 2018 06:59 PM
Michael Jacobs
Pasadena, CA
Pasadena And Southern California 818.516.4393

Hello Debbie - a very thorough explanation.  This is an often-asked question by first time homebuyers or those relocating from places where this practice may vary.

Nov 27, 2018 05:47 AM
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

The other thing I see quite often is first-time buyers not understanding that an earnest money deposit differs from a down payment. There is definitely confusion and I'm often explaining that they are not the same thing. Eventually, the buyer wraps their head around it.

Dec 20, 2019 04:46 AM