Woman signing an earnest money check

Your Guide to Earnest Money Deposits

Aug 24, 2023 Realtor Resources , Technology Share:

You may think you already know everything there is to know about earnest money deposits. But digital earnest money deposits are here, making life easier for both realtors and homebuyers. They may also be your key to a smoother, more stress-free closing.

Whether you want to brush up on your knowledge, learn more about the benefits of digital earnest money deposits, or just want to pass on some helpful information to your clients, our guide is designed to answer the most common questions about earnest money deposits.

What is an earnest money deposit?

An earnest money deposit, sometimes known as an EMD, is a sum of money that accompanies a buyer’s offer to purchase a home. An earnest money deposit serves as a show of good faith that demonstrates that the buyer is serious about purchasing a property. This initial deposit towards a purchase ensures that the buyer has a vested interest in completing the deal. Earnest money deposits are applied to the buyer’s down payment or total closing costs.

Are earnest money deposits always required?

While there’s no legal requirement for earnest money deposits, they are a standard practice. Like most things associated with a real estate transaction, the EMD is subject to negotiation. Ultimately, the purchase agreement will dictate whether or not an earnest money deposit is required.

Most buyers should expect to make an earnest money deposit when planning to purchase a home. However, some sellers may be willing to waive this requirement under certain market conditions, especially if they’re looking to attract more buyers. All parties may also choose to waive the earnest money deposit in a “quick close” situation.

How much earnest money is standard?

The amount required for the earnest money deposit will also be dictated by the sales contract. While 1% to 3% of the purchase price is generally standard for an EMD, this amount can be negotiated. A more competitive seller’s market may demand a larger earnest money deposit. Luxury purchases may also warrant a larger deposit.

If a buyer is planning to purchase a $300,000 home, they should expect their earnest money deposit to be anywhere from $3,000 to $9,000 for a typical sale. While this amount is factored into the total cash required to close, the funds will need to be available shortly after signing the purchase agreement.

When is the earnest money deposit due?

In the same way that the earnest money amount is determined by the sales contract, so also is the due date. The contract will specify when the earnest money needs to be deposited; this is usually within a few days after the final contract is accepted.

Buyers usually have several options for depositing their earnest money, including a certified check, wire transfer, or digital earnest money deposit. Your closing attorney or title company will give you specific EMD instructions.

Who holds the earnest money before closing?

Although the earnest money deposit belongs to the seller, you should never give the EMD directly to them. Earnest money deposits are held by a neutral third party, such as the title company or a closing attorney, until the sale is complete. This ensures that the funds are handled fairly and impartially. This also keeps the funds secure and inaccessible to either party until specific conditions of the purchase agreement are met.

Is earnest money refundable if the deal falls through?

Not every deal that goes under contract is closed, so what happens to the earnest money in these situations? Again, it all depends on the purchase agreement. The contract should stipulate contingencies for an earnest money refund. Common contingencies that would permit an earnest money refund would include:

  • Problems with the home inspection
  • Financing issues
  • The seller's failure to meet the agreed-upon terms of the contract

Remember that the EMD serves as a type of “insurance” to the seller that the buyer intends to complete the purchase, and it can be compensation for time off the market if the deal falls through. If the buyer backs out of the contract for a reason that isn’t covered by the contingencies, such as changing their mind or finding a home that they like better, the seller will keep the earnest money deposit.

Can you renegotiate the earnest money amount after the offer is accepted?

Once the offer to purchase a home is accepted and the contract is signed, that contract is binding. To make any changes to the contract after this time, including a change to the earnest money amount, both parties will need to agree to this change and amend the purchase agreement. Note that any amendment to the contract may delay closing.

Can you use a personal check for an earnest money deposit?

Your title company will let you know what kinds of earnest money deposits are allowed. In some cases, a personal check will be accepted, but it usually depends on the amount of money and the title company’s policies. Other options for earnest money deposits include certified checks, wire transfers, and digital earnest money deposits.

Are digital earnest money deposits really safer than using a check?

Many people believe that the safest way to deposit earnest money is by using a personal or certified check. But just because it’s analog doesn’t mean that it’s safer: both personal checks and certified checks are used fraudulently in real estate transactions.

While your title company will promise to keep your check safe if you choose to use one, you don’t need to worry about the safety of a digital earnest money deposit. Digital earnest money deposits utilize industry-leading, bank-level security and encryption to protect transactions.

How do digital earnest money deposits streamline closing?

One key benefit of digital earnest money deposits is that they are always assigned to the right file, eliminating any guesswork at closing. When a buyer drops off a check or sends a wire for an earnest money deposit, it doesn’t always have the right information attached to ensure that it’s assigned to the right person.

In some cases, wire transfers arrive without any identifying information at all. But a digital EMD gathers all the necessary information when the funds are sent. This prevents any scrambling at the closing table or back-and-forth trying to locate the wire.

Digital earnest money deposits are also really easy and straightforward to use. Buyers have enough to worry about without having to go to the bank for a certified check or drop off a check at the title company. When using a digital platform, buyers can deposit their earnest money from anywhere at any time in just a few minutes.

Can you deposit earnest money online at South Oak?

Yes, you can deposit earnest money online when you’re closing at any South Oak location! Before making a digital earnest money deposit, buyers simply need to visit the earnest money page on the South Oak website. Buyers will read and sign an earnest money agreement before logging in to the EMD portal.

At South Oak, we use Paymints.IO for digital earnest money deposits. Our software makes it easy for you to log into your banking institution through the Zelle platform. Buyers can see all of their bank account details and easily initiate their earnest money transfer. Clients closing at our Huntsville location have a different, easy-to-use platform for digital earnest money deposits.

We are committed to serving as a trustworthy partner throughout the real estate transaction, and we’re always working hard to make closings as straightforward and easy as possible for realtors, lenders, and their clients. With digital earnest money deposits, we make sure that your earnest money gets to the right place at the right time without any hassle.

Contact us to learn more about how we are making closings better than ever. You can also order a title or schedule your closing online today.