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What Is an Earnest Money Deposit, and Why Is It Needed to Make an Offer?

We get asked this question quite often from our buyer clients, and we know that some of you would like some clarification as well.

An earnest money deposit is required with every offer.  It basically shows the seller that you are a serious buyer, and that you are delivering them an offer with a portion of the down payment in advance.  Typically in residential real estate, a 3% (of the offer price) earnest money deposit is delivered with the offer.

This amount is only drawn from your account once an agreement has been made with the buyer and seller.  Escrow opens right after this, and the buyer has 3 days to submit their earnest money deposit check.  Escrow then deposits this amount into a neutral account until closing, and the amount gets deducted from the total down payment.

The buyer usually has around 17 days (this time frame is negotiable) to conduct their due diligence on the property.  Not until the 17 days expire and the buyer has removed certain contingencies (and feels comfortable that there is nothing else to discover about the property that could change their mind) is the earnest money nonrefundable.  Until this happens, the buyer can cancel escrow for any reason and get their earnest money deposit returned to them.

We hope this helps to explain the process. 

If we can be of any assistance to you in buying or selling your home throughout the Santa Clarita Valley, please contact us.