Submit Earnest Money Deposit (EMD)

TLDR: Submitting your Earnest Money Deposit is the first task to complete after you ratify the contract.

Where does my earnest money deposit go?

Your earnest money will sit in an escrow account, managed either by the title company or attorney. Assuming you get to closing, your earnest money deposit will go toward the down payment and closing costs. If the agreement is terminated because of a contingency in the contract or because the seller is in breach of contract, you will likely get your earnest money deposit refunded to you. If, however, you end up backing out of the contract for a reason not stated in your contingencies, you will likely forfeit your earnest money deposit to the seller.

Not-So-Fun Fact

Things can get ugly if you and the seller disagree about whether your termination of the contract falls within the realm of what you agreed on. If you can't agree, you'll need to talk with an arbitrator, who won't come free.

Example: When can you cancel?

If you decide to terminate the contract and have the relevant contingencies in place, you'll have your earnest money deposit refunded to you. A contingency will prevent you from losing your earnest money deposit in these common situations:

If any of the aforementioned situations arise and you haven't included a contingency, it's likely that you'll lose your earnest money deposit.

What is breach of contract?

Breach of contract is legalese for saying you didn't abide by the terms of the contractual agreement. If you terminate the contract for an event that your contingencies anticipated, such as not getting approved for financing or the house not appraising for at least the sales price, you won't be in breach of contract and you will likely have your earnest money deposit returned to you in full. If, however, you break the rules of the contract, it's likely that the seller will get to keep your earnest money deposit.

What happens if the seller decides they don't want to sell?

Sellers don’t back out of purchase and sale agreements very often. After all, they’ve likely spent a fair amount of time preparing, marketing, and showing the property before finally negotiating an offer and signing. Terminating the contract would mean starting back at square one. In the unlikely event that the seller gets cold feet, buyers have a few different options, including suing for specific performance (read: to complete the sale) and placing a lien on the property. Both of those situations necessitate consulting with a real estate attorney.