What happens to an earnest deposit?

Omaha Real Estate Contributed by David Matney with Alliance Real Estate

An earnest deposit is used to demonstrate "good faith" to the seller when making an offer on a property. Typically, this is in the form of a check that is submitted along with a purchase agreement. It is not very common but actually a buyer can use other types of collateral for an earnest deposit for example a diamond ring, etc.

The earnest deposit is normally made out to the name of the buyer's broker. The Broker for the buyer will deposit the check into their trust non-interest bearing trust account. Upon deposit the Broker for the buyer sends a check from their trust account to the Listing Broker. The Listing Broker then typically sends a check to the Title company and the funds are held in trust.

If the transaction closes the earnest deposit is credited to the buyer and applied to the amount of the home. If the transaction does not close then ALL parties have to agree in writing to disposition of the earnest deposit. The title company can not release the funds until ALL parties have a signed agreement. If the buyer/seller can not come to an agreement then it has to be decided in a courtroom.

The proper handling of earnest deposit money is extremely important. Brokerage firms are subject to annual audits to ensure compliance with state law and documentation and time frames are examined very closely.

Thanks,

David Matney, CRS,GRI

Alliance Real Estate