How Soon Does Earnest Money Need to Be Deposited?
Understand the precise timing and critical steps for depositing earnest money in real estate, ensuring your offer remains secure.
Earnest money is a deposit a buyer makes to a seller in a real estate transaction, demonstrating a serious commitment and genuine intent to purchase a property. The funds are typically held by a neutral third party in an escrow account until the transaction concludes. This arrangement helps to secure the offer and can provide compensation to the seller if the deal falls through due to the buyer’s failure to uphold their contractual obligations.
Establishing the Deposit Timeline
The timeline for depositing earnest money is not universally fixed by law. Instead, it is primarily governed by the specific terms outlined in the purchase agreement between the buyer and seller. Common contractual timelines for earnest money deposits often range from 24 to 72 hours after the purchase offer has been accepted.
Some agreements may specify a period of one to three business days following contract acceptance. The distinction between “business days” and “calendar days” is important, as weekends and holidays typically extend a deadline to the next business day. For example, if a deadline falls on a Saturday, the actual due date would shift to the following Monday, assuming it’s not a holiday.
Methods and Custody of Earnest Money
Earnest money is typically transferred through secure methods to ensure the funds are handled properly. Common forms of payment include wire transfers, certified checks, or cashier’s checks. While personal checks may sometimes be accepted, they are less common due to the potential for delays or insufficient funds.
The funds are not given directly to the seller but are instead held by a neutral third party in an escrow account. This third party can be an escrow agent, a title company, or a real estate broker’s trust account, as designated in the purchase contract. Holding the money in escrow protects both parties, ensuring funds are disbursed correctly according to the agreement.
Implications of Not Meeting the Deadline
Failing to deposit earnest money within the specified contractual timeline can have significant consequences for the buyer. Such a failure typically constitutes a breach of the purchase agreement. When a buyer defaults on this obligation, the seller generally gains the right to terminate the purchase agreement.
This can result in the property being put back on the market, and the buyer risks losing the opportunity to purchase the home entirely. Some contracts may include a “cure period,” offering the buyer a short window, often three banking days, to rectify the default after receiving notice. If the buyer does not deposit the funds within this cure period or if the contract does not provide one, the seller may be entitled to keep the earnest money as compensation for their time and the property being off the market.