Clients in the process of selling or buying real estate often misunderstand the meaning and process of earnest money deposits. An earnest money deposit (EMD) is a good faith deposit to show the seller that the buyer is serious and has all intentions of fulfilling the purchase contract.
The area and the local market conditions will guide the Realtor in advising the buyer on how much the earnest money deposit should be. There is no set amount but instead a general expectation of 2% of the purchase price. Once a contract is fully executed by both parties, the buyer will provide their EMD to their Realtor, who in turn has it deposited into an escrow account for safekeeping. Escrow Accounts can be maintained by banks, title companies, brokers, and many other businesses. At the time the deposit is made, the money now is in holding and does not belong to the buyer or the seller. The deposit will be applied to the purchase price however it is important to know that this is not a down payment.
In rare instances, a purchase will fall through and the contract between the seller and the buyer will be terminated. Some sellers think that if a buyer backs out, the EMD is automatically theirs and some buyers think that if they don’t purchase the property, they are entitled; neither is correct. Each and every contract and circumstance is different so there is no right way to disburse the EMD. One thing for sure, the sellers and the buyers will need to mutually agree on the release and disbursement of the deposit. This is the best resolution for everyone. If an agreement cannot be reached between the parties on the disbursement, the deposit will remain in the escrow account and further action will be taken, up to and possible including legal action until a Disbursement Order is issued. It is important to remember that once the earnest money is deposited, the real estate agents, the brokers, and the brokerages do not have any control over the deposit and are held to state laws on the handling of the deposit.
So whether you are interested in homes for sale in Pensacola or condos in Perdido Key, an earnest money deposit will be expected. The amount of your EMD may also be a deciding factor if a seller is reviewing multiple offers. This is an anticipated time for both parties and whether you are writing the check or accepting the offer, the earnest money deposit is the sign that your contract is official and you can start looking forward to closing.
