Making an earnest money deposit can help buyers lock up their dream home. Earnest money deposit deals are also appealing to sellers, making them a valuable tool.

However, making earnest money deposits typically requires prospective buyers to hand-deliver or mail a physical check to their real estate title company. The escrow title company then must process the check and notify the seller that the funds have been received. This makes providing earnest money deposits quite tedious and can delay the real estate transaction from moving forward.

Patten Title has partnered with ZOCCAM to streamline this process. The ZOCCAM mobile app allows involved parties to effortlessly and instantly make an earnest money deposit, thereby increasing the efficiency of the closing process.  

What Is an Earnest Money Deposit?

An earnest money deposit, sometimes known as a “good faith deposit,” is a transfer of funds made to sellers before a real estate transaction is ready to close. These funds are known as “earnest money” because they demonstrate that the prospective buyer sincerely or earnestly intends to proceed with the purchase of the home. While the earnest funds are provided to sellers, they are held by title and escrow companies until the deal proceeds.

Earnest money deposits can incentivize sellers to accept an individual’s offer because they demonstrate that the person is serious about making the purchase and can give a prospective buyer an edge in their offer if the earnest money deposit is significantly higher than other offers. Additionally, an earnest money deposit allows the buyer to prove that they can access the requisite funds needed to purchase a property.

Once a seller accepts a conditional offer from a buyer, they must take the home off the market. If the deal falls through, the seller has lost weeks or even months of progress. An earnest money deposit protects their investment in these scenarios by giving them some funds in exchange for the lost time.  

To be clear, earnest money is not the same as a down payment. However, these funds can be applied to the down payment amount if the deal proceeds forward as scheduled.

Earnest money deposits vary in amount depending on the current market conditions. Traditionally, an earnest money deposit should be approximately 1% to 3% of the home’s purchase price. For instance, the earnest money deposit on a $300,000 home may range from $3,000 to $9,000. Buyers can also provide a slightly larger earnest money deposit to entice the seller to accept their offer.

Buyers will not forfeit their earnest money deposit unless they back out of the transaction for an unspecified reason. Conversely, buyers will recover their earnest money if the deal cannot proceed due to certain contingencies listed in the contract, such as a failed inspection.

Who Receives Earnest Money Deposits?

Title and escrow companies receive earnest money deposits and retain these funds until the outcome of the transaction is decided. If the deal proceeds forward, the real estate title company will allocate the funds to closing costs or other designated expenses. If the deal falls through due to the buyer backing out, the real estate title company will transfer the funds to the seller. If the home or the seller fail to meet a contingency, the funds are returned to the buyer.