Earnest money deposits are a key part of the home buying process in Florida. It’s a way for buyers to show that they are serious about purchasing the home.
This guide answers some of the most frequently asked questions about earnest money deposits, from a home buyer’s perspective. It will help you make better informed decisions.
Earnest Money Deposits in Florida: An FAQ Guide
Here are five things you need to know right off the bat:
- Earnest money is a good-faith deposit that shows you are serious about buying a home.
- In Florida, these deposits typically range from 1% to 3% of the purchase price.
- The money is held in an escrow account by a neutral third party, until closing day.
- If the deal closes successfully, the deposit is applied to your costs or down payment.
- If you back out of the deal without a valid reason, the seller may keep the money.
1. What is an earnest money deposit (EMD)?
Earnest money is an upfront deposit provided by home buyers. It shows the seller they are serious and committed to purchasing the property.
It is essentially a “good faith” deposit that is held in an escrow account during the contract period (between offer and closing).
2. Is earnest money required in Florida?
It isn’t legally required. There’s no law in Florida that says you have to pay earnest money.
But sellers expect it because it reduces the chance a buyer walks away from the deal. It also compensates the seller if the buyer breaches the contract. Skipping the deposit could cause the offer to be rejected.
Earnest money deposits are more of a custom or tradition. But it does send a strong signal to the seller. It says you’re not trying to waste anyone’s time, and that you are seriously interested in purchasing the property.
3. How much earnest money is typical in Florida?
The average or typical amount can vary based on location, market conditions, and other factors. The average earnest money deposit in Florida ranges from 1% to 3% of the home’s purchase price. In a competitive market, buyers sometimes make larger deposits to make their offers stand out.
4. How is it different from the down payment?
Earnest money deposits and down payments are two separate things:
- Down payment: Money the lender requires you to put toward the purchase.
- Earnest money: Money paid to the seller to show you are a serious buyer.
But both of them can be applied toward the purchase price at closing. The seller never actually receives the earnest money deposit; it’s a direct investment in your purchase.
5. When do I actually pay it?
The specific due date for the earnest money is outlined in the purchase contract. It is typically due within 1 to 3 business days after the contract is signed by both parties.
While the process can vary, it usually works like this:
- The buyer submits a written offer to purchase the property, using a standard real estate purchase agreement form.
- As part of the offer, the buyer specifies how much earnest money they’re willing to provide (percentage or dollar amount).
- If the seller accepts the offer, they’ll sign the purchase agreement. This creates a binding contract between the home buyer and seller.
- Once the offer is accepted, the buyer provides the earnest money deposit within a specified timeframe (usually 1 to 3 business days) as outlined in the agreement.
- The deposit is typically held in an escrow account managed by a third party, such as a title company, escrow company, or real estate brokerage.
When the deal closes, the earnest money deposit is applied toward the buyer’s down payment or closing costs. So it becomes part of their purchase investment.
6. Who holds earnest money in Florida?
Earnest money is held by a neutral third party, known as the escrow agent. This is most commonly a title company, a real estate brokerage, or an attorney’s office. The money is never given directly to the seller.
7. Can the buyer give the money directly to the seller?
No, in most cases buyers should avoid giving it directly to a seller. As mentioned above, the funds should be held by a neutral, third-party escrow agent. This method protects both the buyer and the seller throughout the transaction.
8. Are there laws for the handling of earnest money in Florida?
Florida law (specifically Chapter 475, Florida Statutes) governs how real estate licensees must handle escrow funds. The escrow agent has a legal and fiduciary duty to hold and disburse the funds according to the terms of the contract.
Florida has rules requiring escrow and trust accounts be maintained properly. This generally means no commingling of licensee personal funds, deposits at qualified institutions, etc.
The purchase contract should also specify the procedures for escrow handling.
9. Does the buyer get a receipt or other confirmation?
Yes, home buyers in Florida should obtain a receipt or deposit confirmation showing the date, amount, escrow holder name, and the contract reference. This serves as proof that you have fulfilled your obligation, and the funds have been properly received and secured.
You might also want to keep copies of the check, wire confirmation, and the contract language that references the deposit.
10. How do contingencies affect the earnest money deposit?
Contingencies are clauses in the contract that allow a buyer to terminate the agreement and get their earnest money back under specific conditions.
If a contingency is not met (e.g., a failed inspection or financing falling through)—and the buyer terminates the contract within the specified timeframe—the earnest money is usually refundable.
11. How does the “inspection period” tie into all of this?
The inspection period (or “option period”) gives the buyer a chance to have the home professionally inspected. If the inspection reveals significant issues, the buyer can either negotiate repairs or, if the contract allows, back out of the deal and recover their earnest money.
12. What happens to the money if my mortgage falls through?
If the contract includes a financing contingency and the buyer’s loan application is denied, the buyer can terminate the contract and get their earnest money back. But they must provide any required documentation and follow the procedures outlined in the contract.
In contrast, if the buyer chooses to waive the financing contingency or misses key deadlines, the seller could keep the deposit.
13. What happens if the appraisal comes in low?
If the contract includes an appraisal contingency, and the appraisal value is less than the agreed-upon purchase price, the home buyer can typically get their deposit money back. This contingency allows the buyer to terminate the contract if the seller is unwilling to lower the price to meet the appraised value.
14. When can a seller in Florida keep the earnest money?
In Florida, a seller can typically keep the earnest money if the buyer breaches the terms of the contract without a valid, contractually-defined reason. Examples include the buyer getting “cold feet,” missing a contractual deadline, or failing to close on the property.
15. What if the seller wrongfully refuses to return the deposit?
First, the buyer or their agent should send a written demand for the return of the funds to the escrow agent, citing the specific reason for termination based on the contract. If the seller still refuses, the matter may enter an escrow dispute process.
16. How are earnest money disputes resolved in Florida?
When a dispute arises, the escrow agent cannot release the funds without a signed agreement from both parties or a court order. Florida real estate contracts usually specify a dispute resolution process, which can include negotiation, mediation, or (as a last resort) litigation.
17. What happens to the funds at closing?
When the transaction successfully closes, the earnest money is credited to the buyer. This amount is typically applied directly to the down payment and/or closing costs, reducing the total amount the buyer needs to bring to the closing table.
18. What duties do real estate agents have in this context?
Agents must follow the contract instructions, deliver earnest money to the named escrow holder promptly, provide receipts, and disclose how the funds are handled. They should also avoid commingling client funds with personal funds, according to Florida law.
19. How can buyers protect themselves during this process?
The simplest ways for a buyer to protect their earnest money are to: 1) work with a reputable real estate agent and escrow agent; 2) ensure the contract has clear contingencies that protect their interests; and 3) meet all contractual deadlines.
20. How long does the escrow process usually take?
In Florida, the entire escrow process (from contract signing to closing) typically takes about 30 to 60 days. The timeline can vary based on the financing, appraisal, and inspection periods.
The Importance of Contract Contingencies
We’ve mentioned “contingencies” throughout this guide. This is an important concept that directly relates to the earnest money deposit. Florida home buyers should have a clear understanding of how contingencies work prior to making an offer.
Real estate contingencies are like escape hatches built into your offer. These legal clauses state that your offer to buy the house is contingent on certain things happening (or not happening) before the sale becomes final. They give you a chance to back out of the deal and keep your earnest money deposit if things don’t work out as expected.
When buying a home in Florida, you’ll have an opportunity to add certain contingencies to your purchase offer. This is a personal choice that requires careful consideration.
Common real estate contingencies used in Florida include:
- Appraisal Contingency — Allows the buyer to exit the contract if the home’s appraised value is less than the purchase price.
- Financing Contingency — Protects the buyer by allowing them to cancel the contract if they cannot secure a mortgage loan within the agreed-upon timeframe.
- Inspection Contingency — Lets the buyer withdraw or negotiate repairs if a professional inspection reveals significant issues with the home.
- Sale of Current Home — Makes the new home purchase contingent on the successful sale of the buyer’s current residence, avoiding the need for two mortgages.
- Title Contingency — Allows the buyer to terminate the contract if unresolved title issues, like liens or boundary disputes, are found during the title search.
When you add contingencies to your offer, you are making a “contingent offer” that includes certain protective clauses. If you don’t include any contingencies, you are making a non-contingent offer (also known as a “clean” offer).
Whether or not you include contingencies is entirely up to you and will depend on your financial situation, local market conditions, and other factors.
The takeaway: Contract contingencies give Florida home buyers a way to protect their earnest money deposits from things beyond their control.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal, financial, or real estate advice. Laws and regulations may change, and individual circumstances can vary. Consider speaking to a qualified attorney, real estate professional, or financial advisor before making any decisions related to earnest money deposits or real estate transactions in Florida.