HUD Articles

EMD stands for Earnest Money Deposit.  It’s basically good faith money you put towards the real estate you are trying to acquire.  This money is usually held by an independent 3rd party (such as a Real Estate Broker or a Title Agency) and is a credit to you towards the purchase price. 

This money is “at risk” funds.   If you refuse to close on the home the seller may be entitled to these funds in certain circumstances.   Some sellers will insist on large EMD amounts to ensure your interest is strong and to give you motivation to close the deal.

There are scenarios where this money could be refunded to you in the event the transaction does not go through.  For example, many transactions contain contingencies for various things such as the ability to get a mortgage or for verification of property condition.  These contingencies sometimes are not met and if so, the EMD would be refunded to you.   Also, the seller sometimes will terminate the transaction under terms that allow them to do so.  In those events, you would also receive your EMD funds back.

Occasionally, there are events that occur where a transaction is not going to go through, but both the buyer and seller feel they are entitled to the EMD funds.  In those events an arbitration occurs, and the funds are held until the dispute is settled and decided legally.

EMD funds are typically in the form of a check or money order.  In some transactions, it is required they be in the form of a certified or cashier’s check.  It is very rare for any Real Estate entity to accept cash.  A paper trail of funds is always preferred. 

EMD amounts can vary and there is no “standard”.   It depends on the transaction.  In Residential transactions, usually the sale price amount influences what is an acceptable EMD amount.  For example, a low sales price (under $100,000) would see amounts in the $500 to $1,000 range as being acceptable.  As the prices go up, the amount of EMD expected also goes up.  It’s not uncommon to see a seller request 10% of the sales price as an EMD amount, especially on Auction properties.

At closing, your EMD amount will be listed as a credit and those funds will be deducted from the amount of funds you need to bring to complete the transaction.