Earnest Money Deposit

What is an Earnest Money Deposit?
The Earnest Money Deposit (EMD) is an initial deposit made by the buyer to show sellers they’re a serious buyer pursuing the property in good faith. The Earnest Money Deposit is usually 3% of the purchase price in Bay Area Real Estate. For example, if your offer gets accepted at $400,000, the Earnest Money Deposit would be $12,000 ($400,000 x 0.03 = $12,000). This deposit is usually made within 3 business days after your offer gets accepted or your offer may no longer be valid (time frame to deposit the EMD will vary upon contract).
What happens to my EMD and is it refundable?
The Earnest Money Deposit is submitted to and held securely by a third party, usually the escrow company. Buyer’s agent can also hold the deposit in their Broker’s trust account. It is highly recommend to NOT deposit money with seller or the seller’s account.
The EMD is usually fully refundable as long as you back out of the contract within the contingency period (the time frame you have to perform inspection, review disclosures, order appraisal, review title, receive loan approval, etc.) minus fees and costs to the buyer. Even if a buyer removes all contingencies and later decides to back out of the contract, the buyer may be able to receive all or some of their deposit back, depending on the situation or reason why the contract was breached, and also what damages seller incurred as a result of the breach. However, the buyer runs the risk of having the seller take the buyer to court and losing the Earnest Money Deposit.
What happens to the Earnest Money Deposit if we decide to buy the house?
If the buyer decides to move forward with the purchase, the earnest money deposit is used as a part of the down payment or closing costs. Let’s say the buyer is putting 10% down payment of the purchase price, on a purchase price of $400,000, the down payment is $40,000. Using the earlier example, the EMD is $12,000, the buyer will need to put in the rest of the down payment, which is $28,000 ($40,000 – $12,000 = $28,000) to meet the terms of the contract.
The Earnest Money Deposit is the security instrument the buyer puts upfront to show good faith and the contingencies are the safety nets that allow a buyer to back out and have their deposit returned. Each situation is different and your agent will be the best guide in helping you navigate through the transaction.
For any questions about the EMD or other parts of the Real Estate Transaction be sure to contact our knowledgeable and experienced staff at Info@Paymun.com

By | 2018-04-23T09:44:49+00:00 January 30th, 2017|Buy|Comments Off on Earnest Money Deposit

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