What is an “Earnest Money Deposit?”

San Diego real estate agent Linda Moore explains  the concept of the “earnest money deposit” and why it is important to understand when buying a home for sale in San Diego County.

What is “Earned Money Deposit”

Have you heard the phrase “earnest money deposit” during the process of looking for a home for sale in San Diego? This term refers to the money that is provided to the seller of a home to show that the buyer is intent on purchasing the home. In addition to showing commitment to the seller it is also used to help fund the down payment.

Earnest money deposits are essential to the process of buying a home as it keeps buyers from merely making paper offers and keeping many homes off the market while they decide which one they desire. Most sellers require that a potential buyer making an offer have some “skin in the game” and make an offer that includes money down. When the offer is accepted this amount goes toward the down payment.

How Much is an Earned Money Deposit?

The amount of the earnest money deposit can depend on the current state of the real estate market; in slower markets you may be able to offer between $500 and $1,000, but if there is high competition on real estate it may be necessary to provide as much as 3% of the asking price.

How is Earned Money Handled?

The earnest money deposit is not given to the seller directly, but held by the title company or real estate agent after the offer on a house has been accepted. Funds will then be held in escrow until completion of the purchase. Though there may be a cancellation fee assessed if a deal falls through, the purchase agreement will typically cover how a refund is to be handled. Make sure you consult with your real estate agent to discuss how you will get a refund in the event that it becomes necessary.

By Linda Moore


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