Real estate glossary
Earnest money deposit
Also called: EMD, Good faith deposit, Initial deposit
The buyer's good-faith deposit, held by escrow and credited toward the price at closing.
Earnest money shows the buyer is serious. It is deposited with escrow — not given to the seller — shortly after acceptance. In the standard California purchase agreement the buyer delivers it within 3 business days after acceptance, and amounts around 1–3% of the price are common.
At closing it is applied toward the buyer's down payment and costs. If the buyer cancels within a valid contingency, they usually get it back. If they back out without a valid reason, the seller may have a claim to it, depending on the contract.
Releasing a deposit from escrow usually requires both parties to sign cancellation instructions, or a court or arbitration decision.
What it means for you as a seller
Confirm with escrow that the deposit actually arrived on time. A larger deposit and fewer contingencies mean a buyer has more to lose by walking away.
Related terms
- EscrowA neutral third party that holds the money and documents for a home sale and releases them only when every condition is met.
- Liquidated damagesA clause that sets in advance what the seller can keep — usually the deposit — if the buyer defaults on the purchase.
- Contingency removalThe buyer's written confirmation that they are giving up a contingency, which usually puts their deposit more at risk if they later back out.
Not legal or tax advice. These explanations are general information to help you follow your own transaction. Laws, forms and customs vary by state and county, and the terms of your own contract always control. For advice about your situation, talk to your real estate agent, a real estate attorney or a tax professional. Last updated .