What is an EMD?
I get this question a lot. EMD means Earnest Money Deposit. EMD is a deposit you put down on the home once your contract has been accepted. If the contract is not accepted, you are not obligated to put down an EMD.
The best way to explain it is… just imagine you’re going out of town and need to book a hotel. The hotel is going to require a deposit to reserve your room. The same goes for your EMD. The seller requires a deposit in order to make sure that you close on this property and that you’re not just out there putting down contracts on multiple properties.
Back to the analogy… when you check out of your hotel, most likely your deposit goes to the remaining balance on the room. Maybe you ordered room service or watched a movie on pay-per-view — once your total bill is calculated, whatever EMD you put down will deduct from that amount. The same with EMDs. Once you go to closing and your lender says your cash to close is $5,000, if you already put up $2,000 as your EMD, then that money rolls over to your cash to close and you’re now responsible for only bringing $3,000 to the table.
EMD does not go to the seller and is normally held by a third party, which is your title company. Some brokers hold the EMD, but more often than not it is the title company. The title company does not solely work for the buyer or seller. Title companies are third parties that:
Makes sure the money is dispersed properly
All the title work is done on the property, which ensures the seller actually owns the property and it can be transferred to the buyer
Ensures all taxes are paid; if there is a mortgage on the property, they make sure that gets paid and released.
Title companies are obligated to represent both the buyer and the seller to make sure everything is being processed correctly.
I hope you now have a better understanding of EMDs. If you have other questions, please feel free to email me at nicolespayton@gmail.com.
