Earnest Money Deposit, Escrow?? You've probably heard these terms before but don't exactly know what they mean. Well an Earnest Money Deposit or EMD for short, is a good faith deposit made by the buyer when submitting an offer to prove to the seller that they are serious about the home purchase. Do not confuse the EMD with your down payment for your mortgage as they are different. You can think of an EMD like putting down a security deposit. There is no standard amount that must be given but a larger EMD makes the offer stronger as it shows that you are very serious. Typically, EMD's are around 1-3% of the home price so for example, if you are looking to buy a $500,000 home, your EMD would be $5,000 to $15,000.
In Virginia, the EMD must be deposited into an escrow account within 5 business days of when the contract is ratified (accepted by both sides). The escrow account usually is managed by a trusted third party such as a title company. The EMD is held in the escrow account and cannot be released without written consent from both parties. If certain contingencies fail like the home inspection or home appraisal and an agreement is not reached, the sales contract is voided and the EMD is fully returned to the buyer. However, if the seller fulfills all of their obligations and contingencies and the buyer walks away, the seller has the right to keep the EMD as compensation for the time that they took their house off the market. Once the real estate transaction reaches settlement or closing, the EMD is credited to the buyer's closing costs.
If you have any further questions about Earnest Money Deposits or would like to learn more, feel free to reach out to us via the Contact Us page. If not, come back next Wednesday for another great Real Estate Tip of the Week!