EMD stands for Earnest Money Deposit. In reality, this is just a fancy name for the security deposit that a buyer puts down at the beginning of a real estate transaction. In essence, the buyer sends the EMD to escrow once a deal has been made as a show of good faith that they won’t pull out of the transaction.
It’s important to note that the buyer might have contingencies in place to protect their EMD should they decide to cancel the sale for various reasons. This can happen due to a less than stellar home inspection, the home appraising for less than the contract price, or because financing fell through.
EMDs can range in price and will be written into the sales contract. They also usually have a “deliver by” date on them that both sides of the transaction should monitor closely.
Another question that often comes into play is “what is the difference between the EMD and the Down Payment?” The EMD is collected at the beginning of escrow, and the down payment is delivered just before the closing of escrow. While these payments are sent separately, the EMD WILL be part of the down payment when the time comes for the buyer to saddle up and pay. For example, if a contract is written on a $300,000 home and the buyer is putting 10% down with a $1000 EMD, they would be submitting $1000 at the beginning of the escrow (EMD) and then would only have to wire $29,000 when their down payment is due (because they’ve already sent in the $1,000). If they’re using a loan that doesn’t require a down payment, such as a VA loan, the $1000 EMD would go towards closing costs.
In short, DON’T PANIC! The EMD doesn’t just disappear during the transaction. Still have questions? Our agents are here to help!