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Where Does My Earnest Money Deposit Go?

Earnest Money DepositWhere Does My Earnest Money Go?

A basic and very obvious question that most first-time Cape Cod home buyers ask once their purchase contract gets accepted.

When a buyer makes an offer to buy residential real estate, he/she generally signs a contract and pays a sum acceptable to the seller by way of an Earnest Money Deposit or Good-Faith Deposit.

An Earnest Money Deposit (EMD) is simply held according to the terms of the executed purchase contract.


Earnest Money Deposit (EMD)

The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations. These funds are simply to show that you are a serious buyer and in good faith have put forth a sum of money to show your commitment.

Earnest money is is a payment deposit that is put towards the purchase of a real estate or a public tendered government contract that a buyer or a registered contractor has established in order to demonstrate that they are serious “earnest” about closing the transaction.

For example, there may be a contingency period for appraisal, loan approval, property inspection or approval of HOA (homeowners association) documents.

In most cases, the Earnest Money is held by the escrow company or in some cases can be deposited into a brokers specially appointed trust account and later transferred to escrow or title. The EMD is credited towards the home buyer’s down payment and/or closing costs.

*It’s important to keep in mind that the EMD may actually be cashed at the time escrow is opened, so make sure your funds are available and from the proper sources for your lender to verify if you are doing a mortgage.


The Process:

  1. Earnest Money is submitted to an escrow company with the accepted purchase contract
  2. At the close of escrow, the EMD is credited towards the down payment and / or closing costs
  3. If there are no closing costs or down payment, the EMD is refunded back to the buyer after closing

Who Doesn’t Get Your Earnest Money:

  • Listing Agent
  • Sellers
  • Buyers Agent

Your earnest money deposit cannot be released without a contractual reason. If there is a default of the contract then the earnest money could be released. In most cases it still has to be signed off by both parties to the transaction before the escrow company can release it. Otherwise, it will sit there until legal proceedings decide who prevails. Always ask how these situations are handled in your area before you hand over your money.

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