What is an Earnest Money Deposit?

An earnest money deposit, also known as a good faith deposit, is a specific dollar amount that a potential buyer pays to the seller in an effort to display their serious interest in a property.  It's important to note that an earnest money deposit is not the same as a down payment.

The Purpose Of An Earnest Money Deposit

An earnest money deposit is used to secure a purchase contract, which means the buyer doesn't have to worry about the property being sold out from underneath them.  Without an agreement, the seller would be free to sell the home at anytime.  An earnest money deposit, however, secures the availability of the home as the potential buyer obtains an inspection, appraisal and financing for the purchase.

How An Earnest Money Deposit Is Used

If the transaction is successful and the buyer follows through with the purchase, an earnest money deposit is most commonly refunded to the buyer or applied to closing costs.  If the buyer defaults or is unable to obtain financing, the seller often has the discretion to retain the earnest money deposit as damages or as otherwise described in the purchase agreement.

Using Your Dollars And Sense

Before handing over a good faith deposit, make sure that you have faith in the person accepting your money.  Potential buyers should not give an earnest money deposit directly to the seller, nor should they give it to anyone who claims to be with a brokerage firm unless their credentials are verified.
  • May 08 2012 - US
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.