How to Guarantee a Secure Earnest Money Deposit Transfer

When you initiate a real estate transaction in which you are seeking to purchase a home or piece of property, it is common for the seller to ask for an earnest money deposit. This usually entails giving a small deposit of funds to the seller as a symbol of your intention to follow through with the transaction. The actual amount of the earnest money deposit can vary but is typically 1-3% of the actual sale price of the home or property.

According to most contracts, once the earnest money deposit is provided, both parties are then obligated to complete the deal. Until such time that the contract is concluded and the closing occurs, the earnest money is held in escrow, and not actually by the seller.

However, most contracts state that if the buyer should back out of the deal for whatever reason, it is possible that the earnest money will not be refunded. Buyers should always check the details of the contract to see whether or not the earnest money can be returned under certain circumstances or is non-refundable.

How to Protect Your Earnest Money Deposit

When you are ready to provide an earnest money deposit as part of a real estate transaction, there are several steps you should follow and precautions you should take to ensure that your money is safe and protected. It is unfortunate, but the real estate market is prone to fraud, and you don’t want to lose your money to a scammer.

1. For starters, never give your earnest money deposit directly to the seller. It should only be handed to a real estate brokerage, legal firm, title company, or escrow company. The funds will be held in escrow until the real estate transaction is complete, at which time they will go to the seller as part of the total payment.

2. Make the deposit payable to one of the above entities, and not the seller. You should receive information from your real estate agent as to the party that will be responsible for holding the funds in escrow.

3. Verify that the funds have been successfully deposited into an escrow account and ask for a receipt for your records.

4. Except in very rare occasions, there should be no circumstances in which you authorize release of the funds until the closing.

5. As an alternative to writing a check or getting a cashier’s check, you can use a secure payment platform to make the deposit. Doing so not only saves you time and eliminates the need to go to a bank, but also significantly decreases the risk of fraud or the loss of your money.

An electronic money transfer platform such as is compliant with most banks and uses high security protocols and encryption to keep your money secure and ensure it goes to the proper party.

Reasons Why You Might Lose Your Earnest Money Deposit

As stated above, unless the contract specifically states that the earnest money is non-refundable, a buyer can normally get their deposit back if they have a covered reason for canceling the transaction, such as being unable to secure a mortgage.

However, there are some circumstances that could cause you to lose your earnest money deposit. If a buyer were to break the contract for reasons that are not covered by the contract, he or she may, in fact, lose some or all of the deposit.

Likewise, if you get caught making multiple offers and paying multiple deposits, it could violate the terms of your good faith agreement. The seller and/or the real estate brokerage may consider these acts a sign that you are not actually wholly serious about completing your real estate transaction, and in addition to losing your earnest money deposit, you could actually wind up in a fair amount of financial and legal trouble.

Lastly, the closing of the real estate transaction may be based on certain contingencies as defined in the contract that need to be fulfilled before the deal is completed. If not all of the contingencies can be completed and they cannot be waived, you might also risk losing your earnest money deposit.

Additional Ways You Can Protect Your Earnest Money Deposit

Some lenders offer an earnest money guarantee. When you are comparing lenders, see if any offer this guarantee. If so, it is possible that should you lose any money as a result of a delay in closing or other circumstances beyond your own fault, it will be reimbursed up to a certain amount.

You should also make sure that the contract includes financing and inspection contingencies. These are there to protect you. The financing contingencies essentially state that you are not at fault or responsible for completing the deal if you are unable to secure financing, and the inspection contingencies give you the option of backing out of the contract if the home inspector finds significant cause for you to want to change your mind on purchasing the home.

Lastly, simply make sure you complete the closing before the specified deadline. That means that so long as the seller and other parties fulfill their terms of the contract by the deadline, so too must you must secure your financing and be ready to close or you risk losing both the deposit and your chance to purchase the house.

Avoiding Earnest Money Scams

Real estate brokers and buyers must also be wary of earnest money deposit scams. These scams are different from the many types of real estate fraud performed by cyber criminals. Instead, it simply relies upon the trust of the buyer and the buyer’s agent. The scam works when a buyer is interested in a short sale property and makes an earnest money deposit to a listing agent. But after a manner of time, both the listing agent and the earnest money disappears.

Sophisticated versions of these scams involve identity theft or the theft of agent credentials. The scams can be avoided by thoroughly checking the escrow company that is supposed to be holding the funds, thoroughly checking the credentials and license status of the escrow company, and avoiding making deposits on properties that cannot actually be seen.

And, as an extra layer of precaution, make an earnest money deposit via an electronic transfer using a secure payment transfer system such as To learn more about how this money transfer system can reduce the risk of fraud, visit today.