A:

As soon as an agent or broker accepts an earnest money deposit, he becomes an escrow agent. This means that, in most cases, the earnest money cannot be released until both parties provide written permission, either through the purchase agreement or because of some unforeseen circumstance. The only other acceptable reason to release earnest money funds is under instruction from a court order.

Earnest Money Deposit

The rules that govern earnest money deposits in real estate transactions vary from state to state. It is common for the prospective buyer to set down a deposit equal to 1 to 3% of the purchase price, thereby showing the seller he is interested by putting some "skin in the game."

Earnest money is almost always kept with the real estate broker or a title company, depending on the state. Once provided, the funds are kept in escrow until just before the sale is completed. In most cases, the earnest money, once released, is applied as part of the down payment.

Releasing Earnest Money

There are very few universal rules when it comes to handling earnest money. Instead, the rules are established in the sales and purchase agreement. The agreement covers how refunds are handled, if there is a cancellation fee if the buyer backs out and under what parameters the broker or title company determines if the money is returned.

It is always a good idea for the broker to seek a written release from both parties before releasing the earnest money deposit. If both parties claim the deposit, the broker should not release the funds until the two sides have come to terms or a court order is presented.

RELATED FAQS
  1. The Difference Between Term Deposit and Demand Deposit

    Understand the meaning of demand deposits and term deposits, and learn about the major differences between the two. Read Answer >>
  2. How are real estate agents, brokers, and realtors different?

    Agents, brokers and realtors are often considered the same. In reality, these real estate positions have different responsibilities ... Read Answer >>
  3. How liquid are money market accounts?

    Understand the characteristics that distinguish money market accounts from checking, savings account and money market funds ... Read Answer >>
  4. Can a Broker Sell Your Stocks Without Permission?

    Find out if and when it's legal for a broker to sell securities from a customer's account and portfolio without their permission. Read Answer >>
Related Articles
  1. Taxes

    Should You Let Turbo Tax Share Your Data?

    Should you let TurboTax share your data? Possible reward: great deals on student loan refinancing. But there are issues.
  2. Investing

    13 steps to closing a real estate deal

    A long list of things needs to happen before a home becomes yours. Find out what to expect when closing a real estate deal.
  3. Personal Finance

    Where to Put Your Cash: Call Deposit vs. Time Deposit Accounts

    Time deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash.
  4. Investing

    What Are The Differences Among A Real Estate Agent, A Broker And A Realtor?

    All three work in the real estate field, but there are differences between the job descriptions.
  5. Investing

    How Do Real Estate Agents Get Paid?

    Most real estate agents are paid a commission based on the sale price of a property and split between the agents and brokers involved.
  6. Investing

    Picking your first broker

    If you're a rookie investor, choosing a broker may be your first big investment decision. Learn more on whether you should you go with a full-service broker or a discount broker.
  7. Investing

    Understanding The Escrow Process

    Learn the 10 steps that lead up to closing the deal on your new home and taking possession.
RELATED TERMS
  1. Earnest Money

    Earnest money is a deposit made to a seller, often in real estate ...
  2. Good Faith Money

    Good faith money is a deposit of money into an account by a buyer ...
  3. Brokered Deposit

    A brokered deposit is a deposit to a bank that is placed by a ...
  4. Deposit

    1. A transaction involving a transfer of funds to another party ...
  5. Real Estate Agent

    A real estate agent is a licensed professional who represents ...
  6. Term Deposit

    A term deposit is a deposit held at a financial institution that ...
Hot Definitions
  1. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  2. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  3. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  4. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  5. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  6. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Trading Center