What is an Earnest Money Deposit?

An earnest money deposit is a sum of money that a buyer provides to a seller as a show of good faith and commitment to purchasing a property. This deposit is typically made shortly after an offer on a property has been accepted by the seller, and is intended to demonstrate the buyer’s seriousness about completing the purchase.

The earnest money deposit is typically a percentage of the overall purchase price, and is held in an escrow account until the sale is completed. The deposit is often around 1-3% of the purchase price, but can vary based on the terms of the sale.

In most cases, the earnest money deposit is non-refundable, unless certain conditions of the sale fall through. For example, if the buyer is unable to obtain financing or if a home inspection uncovers significant issues that were not previously disclosed, the deposit may be returned to the buyer. However, if the buyer simply changes their mind and decides not to proceed with the purchase, they may forfeit the earnest money deposit.

The purpose of the earnest money deposit is to protect the seller in case the buyer fails to follow through with the sale. By putting down a significant sum of money, the buyer is showing that they are committed to the purchase and that they have the financial means to complete the transaction. If the buyer does not follow through, the seller may be entitled to keep the earnest money deposit as compensation for any time and resources that were expended during the sale process.