General Earnest Money Info for Residential NC Real Estate Transactions
The is a sum of money that the buyer puts down with an offer in order to illustrate seriousness earnest money deposit (EMD)about the offer and to prove that the buyer has the financial means to back it up. There’s no set amount of earnest money required; it’s negotiable. While the buyer’s agent can advise the buyer regarding earnest money, the buyer is the only one who can determine how much to offer.
While earnest money is NOT the consideration required for a valid offer (or a valid, legally enforceable contract), it is generally preferred by sellers when negotiating a sales contract.
A copy of the earnest money check accompanies the offer and becomes part of the terms being considered in the offer/acceptance period-assuming the contract goes through.
The Earnest Money Deposit
A broker may accept custody of a check or other negotiable instrument made payable to the designated escrow agent in a sales transaction ONLY so the broker can deliver the instrument to the escrow agent. While holding onto the instrument, the broker is responsible for safeguarding it, and may ONLY either deliver it to the escrow agent or return it to the buyer. The broker must NOT hold onto the instrument for more than three business days after the sales contract has been accepted.
Under 21 NCAC 58A .0116, a North Carolina broker acting in the capacity of an escrow agent must deposit the EMD in a trust or escrow account no later than three banking days after the broker receives the money. That three-day window doesn’t begin until the acceptance date.
All trust money, including earnest money deposits, may be deposited into the broker’s common trust account. Alternately, brokers may have more than one trust account.
Earnest Money Disbursement
Before depositing any trust money into an interest-bearing trust or escrow account, the broker must obtain a written authorization (from all appropriate parties) that conspicuously states how and to whom any earned interest will be disbursed.
The broker must transfer an earnest money deposit from the broker’s trust/escrow account to the closing attorney (or other settlement agent), but must NOT do so more than 10 days before the anticipated settlement date. Before settlement, the broker who’s responsible for the earnest money must NOT disburse any earnest money for any other reason without the parties’ written consent.
Handling the EMD if Something Goes Wrong
The Earnest Money paragraph in Standard Form 2-T explains the following.
The EMD must be deposited and held in escrow by the escrow agent until closing, and then it must be credited to the buyer. If the contract isn’t consummated, the escrow agent must hold the earnest money in the escrow account until the contract is terminated.
If the offer isn’t accepted OR any condition of the contract isn’t satisfied, the EMD must be refunded to the buyer.
The offer form then refers the parties to paragraph 23, Remedies, for details of each party’s options if the other party breaches the contract. If the seller breaches the contract, the EMD must be refunded to the buyer upon the buyer’s request. This remedy does NOT affect any other remedies the buyer has available if the seller breaches the contract. If, instead of requiring specific performance from the seller, the buyer does choose to terminate the contract, the buyer is also entitled to:
- A refund of the due diligence fee from the seller
- Reimbursement from the seller of any reasonable costs incurred by the buyer during the due diligence period
- Pursue any other remedies the buyer has against the seller
If the buyer breaches the contract, the EMD must be paid to the seller. A combination of the EMD being paid to the seller and the seller’s retention of the due diligence fee is known as . Liquidated damages are the only remedy sellers have liquidated damages available when the buyer breaches the contract, EXCEPT the seller has the right to pursue remedies for property damage, as noted under paragraphs 4(d) and 4(e) of the sales contract. The seller can’t sue for specific performance or other damages (other than the aforementioned property damage.
The parties acknowledge that the liquidated damages amount is compensatory and NOT punitive, and that the amount of these damages is a reasonable estimation of the seller’s actual incurred loss for the buyer’s breach. When the seller retains or is paid liquidated damages, this constitutes actual compensation for the seller’s anticipated loss, rather than a penalty or forfeiture. Both parties acknowledge the difficulty of determining the seller’s actual damages caused by the breach. If either party brings legal proceedings against the other to recover the EMD, the prevailing party is also entitled to recover reasonable attorney fees and court costs incurred from the non-prevailing party.
Note: Should the buyer decide to terminate the contract during the due diligence period, all earnest money deposits are refunded to the buyer.
Disputed EMD
North Carolina General Statute section 93A-12 and NCAC Rule 58A ,0116 (d) (the disputed funds rule) address disputed EMDs. If there’s a dispute between the buyer and seller over the EMD that’s in escrow, state law requires-and the escrow agent agrees-that a broker who received this money while acting in a fiduciary capacity will retain the EMD in the escrow agent’s trust or escrow account until the escrow agent receives a written release from the parties agreeing to the disposition of the EMD, or until a court orders the disbursement. If a broker or North Carolina attorney is holding the EMD, that broker or attorney may deposit the moneys-NOT including residential security deposits-with the clerk of the county in which the subject property is located. The escrow agent is not required to deposit the disputed EMD with the clerk of court; this is simply one option available.
Before the moneys can be deposited with the clerk, the broker or attorney must deliver notification to the people claiming ownership of the moneys-either in person or via U.S. mail-that the disputed moneys are about to be deposited with the court’s clerk, and that they are allowed to initiate a special proceeding with the clerk to recover the moneys. The broker or attorney must not deposit the moneys with the court’s clerk until 90 days following written notification to all parties claiming ownership of the funds.
When the broker or attorney deposits the moneys, he must certify to the court’s clerk that the disputing parties have been notified of that as required.
Once a person or persons file a special proceeding to recover the moneys, the clerk must determine which party is the rightful owner of the funds, and then distribute the funds accordingly.
The parties have from the date of the funds’ deposit with the clerk to file special proceedings with the clerk. If no one year proceeding has been filed within that time, the moneys will be considered unclaimed and will escheat (revert to the state). The clerk must deliver the moneys to the state treasurer.
Dwain Ammons, Realtor® is a NC native and licensed Real Estate Broker in North Carolina.
Kind professional help is available to help you with either buying or selling personal or commercial real estate. I help people in NC buy and sell real estate!
Representing investors, sellers and/or buyers of land, homes and commercial property in North Carolina. I am committed to listening to my clients needs and utilizing keen negotiating skills to ensure successful transactions. Raised in Black Mountain, NC I understand the benefits of “Carolina Living” from the mountains to the coast with its unmatched weather, culture and tax friendly environment. In fact NC is the nation’s top location for businesses. My certifications/endorsements/industry education include C2EX, e-PRO®, PSA and SFR®. Proud to be a REALTOR®. Proud to be a US Army Veteran!
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