Real Estate: What is EMD?

By Kristin Piccone

An earnest money deposit is a good faith deposit that a buyer will submit upon acceptance of an offer for a home purchase.

This deposit can signify to a seller, the strength and seriousness of the buyer, their interest level and show’s that the buyer is willing to put some “skin in the game,” so to speak.

Generally, the brokerage with whom the home is listed for sale by, will hold the earnest money deposit in a trust account. The monies are then released and credited to the Buyer at time of closing provided all contingencies were met according to the Purchase and Sale Agreement.

Prior to the competitive market that we are experiencing today, an earnest money deposit could be any amount that the buyer was comfortable with; however, at time of negotiating a Purchase and Sale agreement, the seller could also choose to negotiate the offered earnest money amount.

For example, let’s say the Buyer’s offer included a $500 EMD, the seller could negotiate that term and make a counter-offer to include a $1,500 EMD, instead. Once agreed, the Buyer has an agreed upon number of days to get the funds to the company who will be holding the deposit.

From here, the Buyer will need to meet certain criteria within the contract to be sure that should something arise during their due diligence and/or contingency period(s), they are eligible to receive their earnest money funds back in full.

What does this mean? When a Buyer makes an offer to purchase a home, you want to have some kind of knowledge on the average timeline for certain procedures. 

For example, if your offer has a due diligence period of five business days, but the home inspector that you want to use is one week out on scheduling new inspections; or if you want certain tests done, but it takes four days for results to come back from the lab, this may be a tight timeline and puts you, the Buyer, at risk for losing your hard-earned earnest money deposit.

Once the agreed upon contingency period is over, the deposit is not refundable to the Buyer and can be retained by the seller. In my experience, and with the competitive nature of today’s real estate market, it would be wise to have your local, trusted and knowledgeable, real estate agent (Me!) that you may be working with to contact the home inspector or professional that you wish to use for any of your due diligence to, either, get an idea as to what the professional’s schedule looks like; or get penciled into their books, and the seller will also be able to see that you, the Buyer, has already done some leg work in preparing and working towards moving forward within the timeline of the offer, as presented.

Overall, no matter the contingency, any and all decisions, as a result of the said contingency must be decided and determined within its specified timeline to ensure you, as the Buyer, receives your deposit back in full.

If you, the Buyer, changes your mind about a home, and the contingency period is over, the seller is able to keep the earnest money deposit funds.

Once a buyer and seller are ready for the closing table to sign paperwork, the Earnest Money deposit is credited back to the Buyer and will go toward any down payment or closing costs associated with the transaction.

If, however, the seller decides that they want to cancel a Purchase and Sale Agreement, the Buyer will receive their earnest money back in full. <

I am a local and knowledgeable real estate agent. If you have any questions about your home, the market, about any real estate terms or concepts, do not hesitate to reach out; this is what I do. I look forward to hearing from you! Be well, Kristin Piccone, Broker at Landing Real Estate. Call her at 207-951-1393 or send her an email at KPiccone@LandingHomesMaine.com