What is EMD?
Whether you’re a buyer or a seller, you're going to be in a transaction, you’re going to be working with Earnest Money Deposits.
Earnest Money Deposits, often called EMD, is one of the first things you are going to encounter, whether a buyer or a seller. This acronym, EMD, is one you are going to see or hear often. Here in the Bremerton/Silverdale area of Kitsap County, we have lots of acronyms flying back and forth between military and real estate brokers. We’ll send an email and say, “hey, your EMD is due” and the buyer has no idea what we’re talking about. So, EMD simply means Earnest Money Deposit.
Earnest Money Deposit; If you're a buyer, this is one of the first things you're going to encounter after your offer is accepted after you have mutual acceptance. What is Earnest Money Deposit? Why do you need it? How does it work?
So, Earnest Money Deposit is simply a good faith deposit that the buyer makes to a trust account or escrow account, that is basically to the seller. It's from buyer to seller through the escrow or trust account. What the Earnest Money Deposit does is it buys the buyer additional time to get their financing in order.
Now, if you're a cash buyer, why do you make an Earnest Money Deposit? Well, it buys you more time that you’re not having to deliver all your money upfront. Since you're going to be making a cash payment, you aren’t going to want to do that right away. You have leeway to deliver the remainder of the purchase price to escrow, so it also buys you more time.
Where does the money go? So, the Earnest money is deposited into a third-party account, typically a trust account or an escrow account, and you most often see a deposit in a trust account at the escrow company. Each person’s situation is different, and there are a bunch of laws your real estate agent or broker can explain to you about what's going on in your home purchase process, but EMDs typically go to your escrow company. It's held in this account until closing or until the contract ends, which can vary depending on what happens to the transaction.
So, that’s the basics of earnest money. Now, what typically happens is a buyer goes into a contract and the first question is “how much earnest money should I provide the seller?” And so, we're going to approach that in a separate post because that's just too much of a question for now. However, that is a discussion you need to have with your agent or broker. It varies from home-buyer to home-buyer, it varies from one market to another. There’s no one-size-fits-all answer to how much Earnest Money you should provide, it really varies on the situation. Your situation, Seller’s situation, the home, etc.
Another question that we encounter a lot is, “Do I get my Earnest Money back?” “What happens to my Earnest Money?” So, if you’re a buyer and you provide earnest money, that is your money, you'll get your earnest money back as long as you stay within the contract. If you breach the contract, you may lose your earnest money but most people don't, you need to work closely with your broker to stay within contract so you get your earnest money back.
Now, let's say you have a mutually accepted offer on a house, and you go all the way to the closing, what happens to your Earnest Money then? You direct escrow on what happens with your Earnest Money. It is the buyer’s money. It typically goes towards closing costs, down payment, something towards the buyer’s expense.
Those are your basics on Earnest Money, what happens with Earnest Money and what it is.
If you found this useful, please share it with your friends or someone you know who has questions about EMD. We'd also love to hear from you. Send us comments and questions that you may have. Earnest Money Deposits tend to create a lot of questions, we'd love to answer them, we’ll take the time to answer them.
We will see you next week.