What is an Earnest Money Deposit?

In early 2022, we are trending in what is considered to be a sellers’ market. This means that there are more people looking to buy a house right now than there are homes for sale. It is important to take advantage of ways to stand out in a sellers’ market because there are typically multiple offers on each home. One way to stand out is to show your strong commitment towards purchasing the house by putting down an earnest money deposit.

When a seller decides to accept an offer from a buyer, they enter a contract called a purchase agreement. The purchase agreement does not always guarantee that the buyer and seller ultimately go forward with the transaction, but it does mean that the seller will take the house off the market while the agreement is explored. To protect the seller in the event that the deal does not go through, the buyer will put down an earnest money deposit. The EMD is a percentage of the total cost of the house, usually not exceeding 3%. If the deal does not go through, the buyer will often lose their EMD, with the funds staying with the seller. If the purchase does move forward, the EMD is used towards the buyer’s closing costs.

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