In Maine, an earnest money deposit (EMD) is money that gets set aside in a trust account at the listing brokerage for the duration of the transaction. At closing, it gets applied to the purchase price. It is not a down payment. You might know EMD as a “good faith” deposit. It is called this because you are promising in good faith to fulfill the terms of the purchase and sale agreement.
Earnest money is typically given at the time of offer or within a few days of offer acceptance. A second earnest money deposit is sometimes agreed to. Usually, this second EMD is submitted after certain hurdles in the transaction are passed, such as inspection, repairs, or appraisal.
Legally, you are not required to submit earnest money. However, it is often expected by sellers and they may refuse your offer if they don’t feel confident in your ability or desire to purchase the home. EMD can strengthen an offer, especially if other terms — offer price, closing date, financing type, sale contingency, seller concessions — are not so attractive.
If you don’t fulfill the promises in the contract or walk away outside of contingency periods (inspection or financing), the seller is within their legal rights to end the contract and keep the earnest money. They have lost valuable days on the market and may have missed out on another buyer, so it’s reasonable for them to want some protection and compensation. The termination form awarding a seller earnest money must be signed by all parties and clearly states that the buyer’s loss of earnest money precludes the seller from pursuing further damages.
If you have questions about earnest money, or any other details of a property transaction, I’m happy to talk to you! Contact me through the form on my website.