Earnest money is a deposit made to a seller that represents a buyer's good faith to buy a home. This deposit money can be called an escrow deposit, good faith deposit, or earnest money. But, whatever the name, its purpose is to show the seller good faith and give the buyer extra time to get financing and conduct the title search, property appraisal, and inspections before closing.
Earnest money deposits can be anywhere from 1–10% of the sales price, depending mostly on a particular market’s customs and the also purchase price. For some lower priced, entry level homes, earnest money deposits can be less then 1% of the purchase price, but for higher priced homes, it’s fairly common to see 5% or sometimes higher.
Traditionally, the buyer writes the earnest money check, and a copy of that check is submitted with their offer on the property for sale. If the contract is accepted and executed, that check needs to be sent to the escrow agent in a timely manner. The Maryland contract of sale has a section that allows for the earnest money deposit timeframe to be spelled out in writing—either it “has been delivered” at the time of the offer, or it “will be delivered” within a specified amount of days from contract acceptance. Contracts also allow for additional deposits to be specified beyond the initial deposit, for example, after inspections are completed.
Buyers also have more options to send earnest money deposits using digital payment solutions. This is a more up and coming availability, but it is one that a lot of buyers prefer if they are used to online banking.
Contracts also stipulate who the earnest money deposit will be held by. If it’s not held by a Maryland licensed real estate broker involved in the transaction, the parties in the contract have to execute a separate written escrow deposit addendum that complies with Section 10-802 of the Real Property Article, Annotated Code of Maryland. These escrow addendums detail the information that is required to be in writing by the escrow agent and includes: the amount, the date it was received, the responsibility of the escrow agent to notify the purchaser and seller of trust money returned due to dishonored funds; the conditions under which the escrow agent may release the trust money, and, the process to address disputes over the release of the trust money.
Lauren Bunting is an Associate Broker with Atlantic Shores Sotheby’s International Realty in Ocean City, Maryland.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
