Earnest Money Deposit: Everything You Need to Know

Admin June 06, 2024

In the world of real estate transactions, earnest money deposit (EMD) can serve as a crucial aspect, often marking the beginning of a serious commitment between the buyer and the seller. This initial deposit, also known as a ‘good faith’ deposit, demonstrates the buyer's seriousness in purchasing the property. Let's delve into everything you need to know about earnest money deposits.

What is Earnest Money Deposit?
It is simply a deposit provided by the buyer to the seller to indicate their serious intention to purchase the property. It serves as evidence of the buyer's commitment and is typically submitted shortly after the seller accepts the buyer's offer. This deposit is held in escrow until the closing of the sale, at which point it’s applied towards the down payment of the property. In Mauritius, the earnest money deposit is due at the signing of the ‘Promise of Sale’ at the appointed Notary office.

Handling of Earnest Money Deposit
Once the deposit is submitted, it is typically held in escrow by a neutral third party, such as a Notary, until the closing of the sale. The Notary or escrow ensures that the funds are safely held and disbursed according to the terms of the purchase agreement.

Protection for Seller
The primary purpose is to protect the seller in case the buyer fails to fulfil the obligations outlined in the purchase agreement. By providing this deposit, the buyer demonstrates their financial capability to proceed with the transaction. If the buyer backs out of the deal without a valid reason, the seller may be entitled to keep the earnest money as compensation for the time and effort invested in the transaction.

Protection for Buyer
The deposit also offers protection for buyers. In the event of unforeseen circumstances or issues with the property discovered during the due diligence process, the buyer may have the option to back out of the deal and retrieve their deposit. However, specific conditions outlined in the purchase agreement must be met to exercise this right without forfeiting the deposit.

Amount payable
The amount varies depending on various factors, including the preferences of the parties involved. In Mauritius, earnest money deposit is typically 10% of the purchase price. 

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