Where Does My Earnest Money Go?

I gave my real estate agent a $10,000 Earnest Money Deposit check… Where does that money go?

A basic and very obvious question that most First-Time home Buyers ask once their purchase contract gets accepted.

According to Wikipedia:

Earnest Money – an earnest payment (sometimes called earnest money or simply earnest, or alternatively a good-faith deposit) is a deposit towards the purchase of real estate made by a buyer  to demonstrate that he/she is serious (earnest) about wanting to complete the purchase.

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  (usually 3% of the purchase price)by way of earnest money. 

An Earnest Money Deposit (EMD) is simply held by a third-party escrow company according to the terms of the executed purchase contract.

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

The Earnest Money held by the escrow company is credited towards the home buyer’s down payment and/or closing costs and is refundable if the purchase does not close less any escrow company charges.

*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 from the proper sources.

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

Who Doesn’t Get Your Earnest Money:

  • Selling Real Estate Agent – A conflict of interest
  • Sellers – Too risky
  • Buying Agent – They shouldn’t have your money in their account

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