If you’re a buyer or seller in today’s market, you have probably heard the term EMD, but what IS it?
EMD stands for Earnest Money Deposit. It is a deposit made by a buyer showing the seller that they have good faith in the transaction. If all goes well, the seller accepts your offer and the earnest money goes towards your down payment. If something goes wrong, a majority of the time you can get your earnest money back.
At the time a written offer is initiated, you, as a buyer, will generally be required to give an EMD in an amount equal to between 1–3% of the purchase price. The EMD check is usually made payable to your Buyer’s Agent’s brokerage (unless the home is new construction or a bank-owned property). If the purchase offer IS accepted, the EMD is deposited within two (2) banking days into a non-interest bearing account and applied to your buyer settlement numbers as a credit. If the offer is not accepted, this amount is returned to you promptly.
When can I get my EMD back?
Most of this information depends on the area you are buying/selling in and your specific purchase contract, so always contact your agent if you have any questions about your EMD specifically! Here are a few general cases in which you can likely get your earnest money deposit back:
There are irreconcilable issues found during inspection
If, during your inspection, you find issues with the home that you or the seller are not willing to come to terms with in regards to remedy or repair, you can get your EMD back (as long as everything is done within the time limits dictated in your purchase agreement).
The house appraised for less than your purchase price
Again, this will be laid out as a specific contingency in your purchase agreement. When you are obtaining financing for your home purchase, your lender will want to know that the property is actually worth what you agreed to pay for it. If the appraised value comes in low, your lender will only loan up to that amount and as the buyer, you are responsible to pay the difference. If you are not willing to do so to move forward with the home purchase, you can get your earnest money deposit back.
Your other home didn’t sell
If your purchase agreement contained a contingency on your current home sale, and the sale doesn’t happen (within the given timeframe), you are entitled to receive your EMD back.
The seller backed out
This may seem obvious, but if the seller backs out of your deal, no matter the reason, you get your earnest money deposit back! The only time this isn’t the case is if you specifically included a nonrefundable EMD clause in your contract.
Are there any situations where I can’t get my EMD back?
Be careful though! There are a few times when you cannot get your earnest money deposit back:
If you waived your contingencies
With the competitive nature of today’s market, you may waive your contingencies to be a more attractive buyer in a multiple offer situation. The downside to this option is that you may lose your earnest money deposit if you encounter any issues as you navigate the purchase process.
If you pass your timeframes
There are specific time frames laid out in your purchase agreement for things like completing the inspection, notifying the seller of inspection issues, or securing financing. If you pass these deadlines without working extensions out with your seller, you are forfeiting your right to your EMD if you don’t go through with the sale.
If you get cold feet
As a buyer, you always reserve the right to change your mind about purchasing a home, but if there is no contractually relevant reason for you to walk away, the earnest money deposit is forfeited to the sellers. This is the idea behind the EMD, safeguarding the seller who took their home off the market for you.