Ramesh Rao Blog September 27, 2023


An earnest money deposit (EMD), also known as an initial deposit, is a crucial component of a real estate transaction. It involves the buyer paying a certain amount of money to the seller as a demonstration of good faith and to kickstart the process of buying a property. Typically, the EMD is around 3% of the purchase price and is often applied toward the buyer’s overall down payment.

The specific details regarding the initial deposit, including the amount and how it should be deposited, are outlined in the Real Estate Purchase Agreement. It is expected that the buyer wires the deposit within one day of the offer’s acceptance to showcase their seriousness and commitment to the transaction.

The primary purpose of the EMD is to reassure the seller of the buyer’s sincere intention to proceed with the purchase. It provides the seller with a certain level of security, knowing that the buyer is less likely to back out of the deal. The EMD is typically held in escrow by a Title Company, acting as a neutral third party, until the transaction is completed or until all the agreed-upon conditions are met. Adhering to the timeline is crucial in this process, as failure to deposit the funds within the specified timeframe outlined in the contract can prompt the seller to issue a Notice to Perform. This notice gives the buyer a two-day window to either submit the deposit or cancel the contract.

In the event that the buyer decides not to proceed with the purchase after removing all contingencies, the seller may be entitled to keep the EMD as compensation for damages incurred.

Overall, the EMD plays a vital role in a real estate transaction by providing both the buyer and the seller with a sense of security and ensuring a smooth progression of the deal. If you have any further inquiries regarding the significance of the initial deposit, feel free to reach out to Ramesh Rao.