The earnest money goes to an escrow company, not directly to the seller. Here, earnest check is written at the time of the offer and held by the agent.

The deposit, in legalese, is âÂÂconsideration for the agreement.â A contract is worthless without some sort of consideration; some sort of guarantee.

The deposit is submitted by the buyer in the transaction, and this money is held in trust (or âÂÂescrowâ if youâÂÂre watching American reality TV) until the closing date, at which time it forms part of the total sum of money paid for the property.

The deposit is usually around 5% of the purchase price, so if youâÂÂre purchasing a $1,000,000 house, with a 20% downpayment, youâÂÂd provide $50,000 as a deposit, and then a further $150,000 in cash upon closing. The mortgage company would provide $800,000, and that money ��" $50K, $150K, $800K ��" is wrapped up in a neat little package and transferred to the seller.

So where does that deposit money go once it has left your bank account and is put into certified cheque or bank draft form?

ItâÂÂs held in trust, ie. a trust account.

Every real estate brokerage has a trust account, which can only be accessed by authorized persons (usually the broker of record and/or the CFO).

Brokerage trust accounts could contain millions of dollars at any time, as they are made up of deposits on properties listed by the brokerage, as well as commissions/salaries owed to the sales representatives employed by the brokerage.

Or, if in our area, you'd provide EARNEST money, which tends to be around $5k for a 300k house... Earnest money held by the RE brokerage, in trust.

BUT, our deposits were not handled by the RE agency--they are handled by whatever company was hired for Escrow and Title.

My question is not where the earnest money goes to but when to submit it.

It depends on what the Sales Contract dictates...there are many ways a Sales Contract can be written and what is considered the norm for my area may be 180 degrees different for another area.
Typically I try to get the earnest check when writing the offer as it seems to give the offer more credibility. If the offer is accepted then it is usually deposited with the escrow company shortly after...the number of days after accepted offer when the earnest money has to be deposited is _____________ (fill in the blank).

When the initial offer is submitted, i.e. before any counteroffers and negotiations take place. However, the check may not even be deposited into a trust account until the offer is accepted.

To the question - Should the earnest money deposit be included in the initial offer or after the seller accepted the offer?

It should be included in the initial offer.

Earnest money was deposited in escrow after the home inspection was completed for us.

This will vary based upon your state and region.

In my area, buyers gave the earnest money to buyer's agent when the contract was written. The buyer's agent kept that check (well the office did) until an agreement was reached. The buyer's agent then had 24 hours to take it to the seller's agent's office. The Selling office deposited it into a non-interest bearing escrow account. (All offices are required to have such an account.)

Earnest money in my small area was typically only 1%--not much really.

The details of the earnest money were one of the "negotiating" items in the standardized state contract.

Thanks everyone. I learn something new everyday.

And a large earnest money amount can be used to sway the seller.

They see the amount in writing, and may even see the check.

Plunk down a huge percentage of the sellers price and watch there not need to be any further negotiations.

Money talks.

I have purchased houses with an earnest money deposit of 95% of the asking price and a 24 hour deadline to agree or I walk.

As said above, when the EM is submitted depends on the contract, and the laws of your state. You can either give your agent a check to deposit in a trust account or in a escrow account with the title company, or you can sign a promissory note to be redeemed upon acceptance of the offer.

It is not true that all real estate companies have a client trust account. Some prefer not to deal with it and all EM checks are written to the title/escrow company. Also, with most REO sales the bank will require the EM to be deposited in the escrow account.

Also, at least in my state, EM checks for mobile homes on leased land (in parks mostly) cannot be held in the broker's client trust account, because they are not Real property.

As a buyer I would never want my earnest money deposited into the seller's broker's client trust account.

All the homes we've ever bought, sold or thought about buying: The deposit check would be handed to our representative (agent) or wired to the escrow company within 3 days of the accepted offer. We've never done more than 1%, and we've never handed over a check until the offer was accepted. This was true even in the crazy "peak of the market" days in California between 2003-2007.

That said, now that we are in the bay area, things are moving very quickly with cash offers and offers well over listing prices for anything remotely charming. So I think the rules in markets like this might be a little different. But 1% and 3 days has been the rule so far for us.

Depends on the state. Oregon-- When my purchase offer was submitted, I also signed a promissory note for the earnest money. No money went into the escrow account at the title/escrow company until the offer was accepted. I suppose you could argue that dollars changed hands when I signed the note, but I still held the cash until it was deposited into the account, and was contractually obligated to pay within 2 or 3 days of the accepted offer.

"He who has the gold makes the rules"