Earnest Money DepositFor a contract to be ratified it needs to have an Earnest Money Deposit or EMD.  When an offer is made by a buyer and ultimately accepted by the seller and an earnest money deposit is attached to the offer, it means the property is under contract.  The California Residential Purchase Agreement is a binding contract and the terms set forth in it should be carried out as agreed.  Once the purchase agreement has been agreed to by both parties then the earnest money deposit will be paid by the buyer to escrow and the transaction time lines begin.  For more information on the home buying process and timelines, check out our article Home Buying Process Timelines & Paperwork.

Typically the earnest money deposit is a percentage of the agreed upon sales price but it can be as little as $1 for the contract to actually be ratified.  Keep in mind the EMD is as negotiable as the price so just because the normal amount is a percentage doesn’t mean you cannot offer say $1000 as an EMD instead of $2500.  Alternatively you can also offer more as an EMD so that the seller knows you are a serious buyer.  Consider your options and talk to your real estate agent to make the best decision and offer.

An Earnest Money Deposit Is Required To Ratify An Agreement

When an offer is accepted by the seller unless otherwise stated in writing the property will be taken off the market.  The EMD also known as a Good Faith Deposit shows just that, good faith that the buyer’s intentions are pure and that they intend to complete the deal.  In the California Residential Purchase Agreement there is a section on Liquidated Damages, this section specifically covers how the EMD will be handled in the event of a breach of contract.  Buyers, just because you put a deposit up doesn’t mean it’s non-refundable.  Consult your Realtor in the event you get into a predicament for more detailed advice on your particular situation.

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Upon acceptance of an offer the EMD will be given to a neutral party, in California and many places throughout the nation that is an escrow company or attorney.  In California, the escrow company will hold the funds in their trust account until the deal is completed.  In the event that a dispute arises, escrow will only release the funds to a party with written confirmation.  For this to happen a release of deposit must be completed by both the buyer and seller authorizing who is to get the EMD.  If either party disagrees or will not sign the release of deposit then the money just sits in escrow until other arrangements are made such as litigation between the parties.

In general except otherwise stipulated in writing the buyer will most likely receive their deposit back especially during the first 17 days of their inspection period.  However on the 18th day and beyond if there are no other buyer contingencies in place then the EMD very well might be forfeited to the seller in the event the buyer breaches the contract.  Buyers, please be mindful of the contingency releases you maybe signing so you do not unnecessarily forfeit your deposit.

 

For more information on the earnest money deposit, please contact us or leave a comment below.  We’d appreciate the opportunity to assist you!

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