Earnest money deposit is the money deposited by the buyer to the seller. It is usually produced as a check when an offer is made on a house. Earnest money deposit is made by the buyer to tell the seller that he/she is truly interested in buying the home from the seller. Earnest money deposit helps the seller to identify serious buyers.

How much Earnest Money Deposit is to be made?
There is no fixed rule or practice on the amount of earnest money deposit to be made by the buyer. This actually varies from one purchase to other. Earnest money deposit is larger in seller’s markets than in buyer’s markets. Because a seller gets numerous inquiries for a particular house and it takes a little more for a buyer to convince a seller to accept certain amount as earnest money deposit.

As a Buyer, How much Earnest Money Deposit can I Pay?
The thumb rule often used is that a buyer can confidently pay up to 2% of the offer price as earnest money deposit, but not more.

Third Party Escrow
The earnest money deposit is usually to be placed in to an escrow account. The money will be there in the escrow till closing. During that time the buyer and seller can jointly control the money. Once the deal is closed, the earnest money deposit is added to buyer’s down payments.

What If I Decide Not to Buy the Home?
For one reason or other you may decide not to buy that home. In that case what happens to the earnest money deposit that is in escrow? Here is where the seller and you, the buyer may disagree. The seller may wish that the money in escrow is to be paid to them. But, you, the buyer, as you have not made any purchase would want the money back. So, how is it resolved?

Since money is held in a third party escrow, you and the seller should come to a mutual agreement. Then only the funds in the escrow can be released. Once mutual agreement between you and the seller is reached the funds are released from the third party escrow to the buyer, subject to any deductions for any cancellation fees, etc.

Earnest money deposit in escrow can be released only when both parties come to an agreement or when an order is issued by the court of law. Generally parties try to come to terms with each other as it is less time consuming and a less costly alternative than going to court and fighting it out legally.

In certain states, after a stipulated time period if no release authorization is received from the parties, the earnest money deposit in the escrow is returned to the buyer.

Tips to the Buyer
Sometimes problems may arise with the inspections or title search. A buyer should include such conditions in the sales contract upon which the earnest money deposit will be returned to them.

And it is always wise not to give the earnest money deposit to the seller before the deal is closed.