First time home buyer series- What happens to my earnest money?

From Anna Matsunaga, Team Momentum, Keller Williams Realty Tacoma  253 212 1252

Ok, so you have decided to buy a home.

  You have an appropriate amount of earnest money.  You have a loan approval ( I will have another blog outlining this step soon).  Now you are shopping for your new home and you are curious WHAT happens with your earnest money.

For the purposes of this blog I will be sharing what happens with it here in Washington state, likely proceedures are similar in most states.

So here are some things to remember:

1. You really DO need the money to be in the account when you write a check since the check WILL be cashed.  ( many of you today do not have checks at all and will use a money order and that is fine too)

2.  The earnest money can be made out payable to 1 of 2 institutions. 
        A. The chosen Escrow company ( closer)
        B. The Brokerage representing the seller.

3. The check will be deposited with escrow ( or with the listing broker) ususally with in 48 business hours of the time there is mutual acceptance of your offer.

4. You will need to give the actual check to your agent to hold until mutual acceptance is reached.

5. Your agent will deliver the check to escrow or the listing firm as specified in your offer.

6.  You CAN get your earnest money back.....ususally
         A. You must have a legal excuse for not completing the sale ( ie the house fails inspection or your financing fails in order to get the earnest money back)
         B. Even IF you have a legal excuse, in most cases to get the money back both parties must sign paperwork releasing you from the contract in order for you to get the money back.
         C. IF for some reason the other party does not want to release your money AND you have the legal right to it, it will go into what is called "interpleader action" where a neutral party makes the descions regarding returning the money to the rightful owner.  If that is YOU, you will get your money back, minus the cost of the interpleader.
         D. IF you just get cold feet and change your mind with no legal excuse, you will have relieved yourself of the earnest money. ( and keep in mind a buyer has quite a few legal reasons why they may be allowed to leave the contract)

7. You can write a promissory note instead of a check for your earnest money.  This can be convenient if you do not have checks, or if delivering the check to your agent is a challenge for any reason.  IF this is the case the earnest money still MUST be deposited by the deadlines with in the offer agreement.  If you choose to use a promissory note, your realtor will prepare it for you.

8.  Some sellers have rules regarding the earnest money.
        A. Some require a certain amount or percentage of the purchase price of the home.
        B. Some require that you use their choice of escrow and you must write the check out in that manner.
        C. Some will only take a cashiers check and some require that check to be drawn from a larger national bank, or to be a Postal money order only.

9. Your realtor MAY be able to negotiate regarding earnest money.  There are a number of things you might want negotiated on your behalf.  One of these things would be not having to deposit it until after inspection and successful negotiation of the contingency is completed.  ( there are several other things you might want to negotiate and this is a subject of another blog.)

10. Your earnest money is applied to the purchase of your home.  If you are putting money as downpayment ( and almost everyone does) it will be a part of that.  If you are paying your own closing costs, it could go towards that.  What ever money you need to bring to the table to close, the earnest money will count towards part of that.  IF you do not need to bring anything ( perhaps a no money down VA loan, and the seller pays closing?) then you will actually walk away from the table with your earnest money in your pocket.

This is just a basic overview of Earnest Money to help you understand it.  Be sure you speak with your realtor more about questions you may have regarding your exact circumstances.  Realtors actually invest  time and take classes that are about nothing other than earnest money and still likely always have more that they can learn too. 


Look for more topics soon, like....what things might I want my realtor to negotiate regarding my earnest money? What exactly are closing costs?  What is the difference between a loan qualification and a loan approval?  Why get approved before shopping and more.