What is the ‘EMD’ in Real Estate?

So what is an EMD?  Real estate is full of acronyms and unless you're in the business they can be confusing.  EMD stand for Earnest Money Deposit.  Let's break down what it means and how it works...

The Earnest Money Deposit is the buyers initial down payment on the house.  It's reflected in the offer that they buyer makes for the home.  Typically a buyers EMD is approximately 1% of the sales price but can sometimes be more depending on what the seller and listing agent notate in the listing.  So typically if you're making an offer on a $400,000 home the buyers EMD will be $4,000.

This $4,000 EMD used to be written as a personal check made out to the escrow company that would be held by the buyers agent until they have acceptance at which time would be delivered to escrow, but things have changed over the last few years.  Nowadays the EMD is just the amount written within the offer and when the offer and terms are agreed upon between buyer and seller the buyer then has to wire that earnest money deposit directly to escrow from their bank within 3 days of acceptance otherwise they are outside of the agreement.

The earnest money deposit is a good faith deposit on the home that gives the seller and their agent confidence to mark the property "pending" or "under contract" after the offer is accepted.  Additionally, the earnest money deposit goes towards the buyers down payment in the purchase.  For instance, if a buyer is using an FHA home loan to purchase this $400,000 home they will have to have a down payment of 3.5% according to the lenders requirements so their total down payment in this case would be $14,000.  With that in mind that means the EMD is wired at the start of escrow for $4,000 and the buyers remaining down payment of $10,000 in this case isn't due to escrow until the very end of escrow when a buyer is signing their loan docs at which time they wire the remainder.

There are a number of contingencies that protect the buyers deposit during the escrow and we'll speak about that separately in a later video, but that's the break down of how a buyer’s earnest money deposit works.

Please reach out if you have any questions regarding the EMD — happy to help!