What is an earnest money deposit?
Understanding what an earnest money deposit is essential for anyone looking to purchase a property.
Whenever you’re purchasing a property, the seller who is selling is the property is usually going to receive multiple purchase offers from different buyers.
Now once, the seller has agreed to one of the purchase offers, that buyer must wire over what’s called an earnest money deposit to escrow, to get the transaction process started and to show the seller that they’re serious about purchasing the property.
At the end of the transaction, the earnest money deposit will be applied towards the buyer’s down payment funds, and it’s usually between 1-2% of whatever the purchase price is. However, depending on the market, it can sometimes be as high as 3%.
So for example, if you were buying a $300,000 property, and the seller wanted a 2% earnest money deposit, then you’d have to initially wire over 2% of the listed price, or in this case $6,000 to escrow to get the escrow process started.
Usually the realtor that you’re working with will be able to help you out with submitting the earnest money deposit to escrow.
Now, if for some reason the transaction falls through and doesn’t actually close after you’ve submitted your earnest money deposit, you most likely should receive those earnest money deposit funds back from the escrow that you wired it to.
However, if you pulled out of the transaction for a reason that wasn’t allowed under the purchase contract, then there is a chance that the seller can keep the earnest money deposit that you submitted.
With all of that said, make sure you closely look at the purchase contract with your Realtor to make sure that you’re satisfied with how it disposes of the earnest money deposit in the event that you have a dispute with the seller.