An Earnest Money Deposit Agreement

by Neil Kokemuller ; Updated July 27, 2017

An earnest money deposit agreement, also called an offer deposit or good faith deposit, is commonly included as part of a real estate offer to purchase contract. It is intended to show a buyer's seriousness, or earnest, in making a purchase of the property.

Contract Inclusion

An earnest money contract accompanies a purchase offer on real estate. Along with the stated earnest money deposit, the buyer and his real estate agent lay out the terms by which the buyer agrees to purchase the property. This includes an offer price. Along with stated terms of agreement, the buyer typically offers an earnest money deposit as a show of good faith to motivate the seller to agree to the contract. Once the seller agrees to the terms and accepts the earnest money, he is usually legally obligated to sell the property within a certain period of time if all conditions of the contract are met.

Protection

Along with showing the buyer's conviction to making the purchase of the property, an earnest money deposit serves as protection for the seller. When sellers agree to a purchase contract, they no longer can market or sell their property to other buyers. This means a commitment for a period of time to that buyer until the sale is finalized. Earnest money is a financial consideration for the seller should that buyer get nervous or walk away. Unless local law prevents it, earnest money typically goes to the seller in a breach of contract.

Deposit Amount

The amount of an earnest money deposit is not finite, unless local laws dictate a specific amount. According to Sell-My-House-FSBO.com, earnest money can vary from $1 to $1 million, or even more, depending on the price of the home. Some earnest money contracts are even written without an actual financial consideration. Real estate agents often recommended a certain amount based on what they feel shows their buyer's seriousness. Though amounts vary in higher-priced markets, $1,000 is a fairly common earnest deposit in more typically priced home purchases.

Earnest Money Refund

Earnest money should typically be maintained in an escrow or holding account. If a seller refuses the purchase offer from the buyer, earnest money is completely refundable. This also is typically the case if certain conditions of the contract are not met, especially if the seller fails to meet them. If the contract is approved and all conditions are met, earnest money usually goes toward the buyer's down payment and reducing their financial obligations at closing.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.