What's an EMD in Northern Virginia?
Have questions about the buying process?
What is an EMD (Earnest Money Deposit)?
EMD stands for Earnest Money Deposit and is a sum of money that a buyer puts down when their offer is accepted by a seller. It is also referred to as Consideration. These funds are what you are willing to put on the line to show that you are serious about completing the purchase and is typically 1-3% of the purchase price. The amount that you choose is written into your offer contract. The EMD is usually due within 5 business days of your offer being accepted. This date is called the ratification date or execution date. The funds will be held by the settlement company in a separate escrow account. The settlement company acts as a neutral 3rd party throughout the transaction. We recommend that you have the funds for your EMD liquid or easily accessible before you start touring homes so that you don't have issues getting the EMD to the settlement company on time. The EMD is not the same thing as your down payment or closing costs, but if you go through with closing as planned then the EMD will be deducted from your total closing costs and will show as a credit to you on your closing disclosure.
But what happens to that Earnest Money Deposit if you don't go through with buying the house? If you void the contract under the terms of one of your contingencies, then the EMD is protected and would be due back to you. The typical contingencies are a home inspection contingency, finance contingency, and appraisal contingency. Let's say during your home inspection you discover something about the house that makes you decide that you no longer want to buy it, even if the seller is willing to make repairs or negotiate a credit. You would be able to void the contract under the terms of the inspection contingency and once the Notice to Void is issued by you, the buyer, and the Release of Contract and Deposit Addendum are signed by both the buyer and seller, then the settlement company would return the EMD in full back to you.
It is really important for buyers to remember that the EMD is something that you could lose if you void the contract outside of your contingencies. Let's say it's a few days before closing is scheduled to take place. Everything has been moving along and all of your contingencies have been removed, but you decide "Nope, I'm not going to buy this house. I'm not going to go through with closing." In that scenario, if all parties agree in writing that the buyer has no further rights to the EMD, then the seller would be awarded the EMD by the settlement company. Keep in mind that other third parties who have provided services to the buyer and seller during the transaction may also have the legal right to seek financial damages beyond the EMD from the buyer in this scenario as well.
Should negotiations fail between the buyer and seller as to who is at fault, how the disbursement of the EMD will occur, or any other requested financial damages, then an attorney would need to be consulted. The EMD will then be placed in the hands of attorneys and a court of law may have to make the final decision as to monies owed.
Your real estate agent should make sure you understand your contingencies, review all of your contractual responsibilities, and help keep you on track with the timeline of your contract so that your EMD is not at risk. Just another reason why it is important to have a true real estate expert on your side to help keep you and your EMD safe!