Recently, I was asked what is an EMD? And once again, I am reminded that we as professional Realtors are familiar with these acronyms, but most consumers have no clue.
EMD stands for Earnest Money Deposit. What is this Earnest Money Deposit? An Earnest Money Deposit is a sum of money that accompanies an offer. This amount illustrates to the seller a buyer’s good faith or how serious you are as a buyer, or how much skin are you willing to put in the game initially to get this particular home.
In ancient times, the earnest payment was called an earnest penny, and also known as Arles penny, God’s penny, or Argentum Dei. It signified money given to bind a bargain, especially for the purchase or hiring of a servant. According to Black’s Law Dictionary (sixth ed.), Et cepit de praedicto Henrico tres denarios de Argento Dei prae manibus.[1] Another related term was luck money, which was an amount given back to the buyer by the seller on the completion of a deal, for luck.
How much should be given for the Earnest Money Deposit? I would answer that by stating generally this is a conversation to have with your Realtor, they can advise you more specifically with regards to the specific property and according to the specific purchase agreement in their local or state area.
I suggest, generally that the amount of the Earnest Money Deposit not be more than 3% of the purchase price, but is can be as low as $1.00, which in my opinion does not offer a very appealing incentive to the seller to accept the offer.
What is the importance of the Earnest Money Deposit anyways? It demonstrates to the seller in most cases, just how committed to this property and transaction you are as a buyer. This Earnest Money Deposit must be delivered usually in 3 days to the stated escrow company on the purchase agreement or whatever timeframe is stated in the purchase agreement, It is cashed and held in an escrow account (without accruing interest, at least here locally in Ventura County) and will be considered a part of the down payment which is also stated on the purchase agreement.
This Earnest Money Deposit is sort of like insurance for the seller, if the buyer backs out of the purchase agreement transaction after removing contingencies, this Earnest Money Deposit could be lost and awarded to the seller. This is where you as a buyer need to speak with your Realtor to make sure all parties understand the terms of your particular purchase agreement.
I hope this is helpful in giving meaning to EMD.