by Nate Ward
on Friday, August 29th, 2014 at 1:17pm.
Earnest money deposits (EMD’s) are an often-discussed and misunderstood part of real estate transactions. Also known as an escrow deposit, an earnest money deposit shows a buyer’s interest in a property when they make an offer. The potential buyer will write a check either to their real estate agent’s brokerage or to a title company of their choice. The amount of the earnest money deposit is up to the buyer, but it is usually 2.5%-3% of the purchase price. For example, Capital Park Realty recently closed on two properties: one with a purchase price of $585,000 and one with a price of $365,000. For both, the earnest money deposit was $20,000, or 3.4% for the $585,000 property and 5.5% for the $365,000 property. As you can see, it is not uncommon for the escrow deposit to vary in percentage. In the strong seller’s market that DC currently is, the earnest money deposit from the buyer can be higher than the average 3%.
When the buyer’s real estate agent submits an offer, they include a copy of your earnest money deposit check. If the offer is accepted, the potential buyer and their agent have five business days to get the EMD into an escrow account. It will stay there until the time of the settlement. If the buyer defaults on their contract, the earnest money deposit would be in jeopardy. Here at Capital Park Realty we have never had anyone lost a deposit in the more than 10 years we’ve been in real estate. We make sure we have contingencies built into the contract to protect the buyer’s earnest money deposit. When you go to closing, the money is credited back to you and can be used for the down payment, closing costs, or whatever else you desire. Think of an earnest money deposit as a refundable deposit (albeit with contingencies) to show your serious interest in the property you are making an offer on. For more information on earnest money deposits, please contact us and let us know how we can help.