In real estate transactions it is extremely common for the buyer to offer earnest money (to be referred to as EMD) as part of a purchase offer.  Several questions surround this practice: Why is a buyer expected to put up EMD? Is the amount of EMD important to the offer? Who holds the EMD? Are there rules for handling the earnest money? Can a buyer get the earnest money back? Read below to find answers to these questions.

    Earnest money laws may vary state to state, but in the state of Virginia it is common, though not required, for a buyer to offer earnest money as part of a purchase offer of real estate.  In essence, the buyer is putting forth partial consideration as a show of good faith. If the seller accepts the offer the EMD is most often placed into escrow.

The terms of the contract always dictate the disposition of the EMD, and most often it becomes a credit for the buyer at time of closing.

     Just like other terms of a real estate contract, the amount of EMD is negotiable in many cases.  The seller may require a certain amount; however, the buyer may offer less or more. Theoretically, the buyer could offer zero EMD.  Common amounts range from ½% to 1% of the purchase price. Buyers sometimes increase the amount to improve the appearance and quality of the offer.  By placing more funds into the ante pot the buyer is taking a larger risk by giving more leverage to the seller.

            Earnest money is placed into escrow. The terms of the contract should spell this out clearly.  For instance, a real estate contract will commonly state how much the EMD is, when it was (or will be) delivered, who it will be held by, and how it may be dispersed.  In the event the contract does not close, the return of the EMD does not happen automatically.  It must be agreed to in writing by both the buyer and the seller.  In a dispute, the courts may have to be involved. Escrow agents are governed so they may not return or release escrowed funds without specific criteria being met.

      It is true, that in many cases the buyer may get the earnest money back if a contract fails to close. The seller would need to justly show the buyer was in breach of contract to make a claim for keeping some or all of the earnest money. The buyer would also have to agree in writing, or wait until a judge rendered an opinion.  Sellers do not like to delay the return of EMD either, since it could delay or hamper the resale of the real estate to a new buyer. And of course if the contract goes to closing the EMD becomes a credit to the buyer.

     Earnest money is an important part of a real estate contract.  It is one of the first terms of communication between a buyer and a seller.  The buyer will be asking for the seller to remove the home from marketing to others on the promise the buyer will close on a future date.  It is a show of good faith.

Bobby Jankovic, Broker/Owner

RE/MAX Capital 

1166 Jamestown Rd. Williamsburg, VA 23185

Licensed in Virginia #0225055091

cell (757) 291-1114