Earnest Money Deposits in Real Estate Contracts

The Questions?

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Many customers ask me over and over again, “Why do I need to put down a deposit when I make an offer on a home?” and then “When I do that, where does that earnest money deposit go?”

Show off your ability to pay!

First, the earnest money deposit lets the seller know that you are serious about buying the home, and that you can afford it. You don’t need to put a hefty deposit down, although sometimes if  you are making a low offer or if there are multiple offers on one property (and/or it is a cash deal) it may work to your advantage.

Be aware that if you don’t follow the timeline in the contract that that money can be at risk.

Escrow Account

Your deposit should be  held in an escrow account by either a real estate broker, your attorney,  or the title company that will do the closing on the property.  You should know who is holding this money and have their contact information.  The deposit should be credited to you at closing toward your purchase price; It will show on the HUD statement (aka the closing statement).

Protect your property

Your Money is at Risk so Be Careful!

There are instances where the money can be at risk. Ask your REALTOR to explain what you have to do to protect your deposit and be sure to read the contract you are signing.

(For example, your contract my require you to apply for your loan in a certain number of days.  If you don’t do that and can’t get a loan later to buy the property you could lose your deposit.)