Presentation on:- Earnest Money Deposit By: Bhavesh Vekariya Guided by:- Dhiraj bachwani S ubject:- Legal framework of construction project Program:- M.TECH in Construction Project Management Indus Institute of Technology and Engineering August 2019

C ONTENT  Definition of Earnest Money  INTRODUCTION  Rates & Factors of EMD  Why EMD is Demanded?  How to Submit EMD?  Reasons to Pay Earnest Money  When EMD is Returned?  Reference

D EFINITION OF E ARNEST M ONEY  Earnest Money Deposit A sum of money given to a seller in order to bind a contract, or as a show of a buyer’s good faith in his intent to finalize the deal.  Origin English

INTRODUCTION It is the amount of money to be deposited along with the tender document to the department by the contractors quoting a tender. This money is a guarantee against the refusal of any contractor to take up the work after the acceptance of his tender. In case of refusal this amount is forfeited. EMD of contractors whose tenders are not accepted will be refunded. 1%-2% of the estimated cost of work is the Earnest money deposit.

INTRODUCTION If the earnest funds in the escrow account earn interest of more than $5,000, the buyer must fill out tax form W-9 with the IRS to receive the interest.form W-9 Example The earnest money deposit, it often ranges between 1% and 2% of the home’s purchase price, depending on the market. If a home costs $250,000, a 1% earnest money deposit would be $2,500; at 2%, the deposit would be $5,000.

R ATES & F ACTORS OF EMD In many cases, a buyer can expect an earnest money deposit to be at least 1percent of the purchase price, though sometimes the rates are as high as 2 to 3 percent.  Some of the factors that influence the amount of earnest money include:  Current state of real estate market: If homes are selling quickly, the seller may require a higher deposit amount, and vice versa.  If more than one buyer has bid on the property, the bidder offering the highest earnest money amount may secure the agreement.

W HY EMD IS D EMANDED ?  Earnest money is demanded from each tenderer to ensure the owner that a tenderer/bidder does not withdraw his tender / offer before its acceptance, or refuse or deny to execute the work after it has been awarded to him. How to Submit EMD?  The amount of EMD as demanded in the tender shall be by bidder while submitting the tender / bid. Generally amount of EMD is 1% of total estimated cost put to tender. The tender without EMD is considered non responsive and rejected outright. The EMD of unsuccessful bidder is generally refunded after finalization of contract.

R EASONS TO P AY E ARNEST M ONEY  The contract does, however, ensure the seller takes the house off the market while it’s inspected and appraised. To prove the buyer’s offer to purchase the property is made in good faith, the buyer makes an earnest money deposit (EMD).

W HEN EMD IS R ETURNED ?  The Earnest Money Deposit of the successful bidder is generally returned after the bidder submits the Contract Performance Guarantee / Security Deposit as specified in General Conditions of Contract. If no security deposit is specified than the Earnest money deposit will be retained as security deposit.

W HEN E ARNEST M ONEY I S R EFUNDABLE ?  Earnest money is always returned to the buyer if the seller terminates the deal.  The buyer may be able to reclaim the earnest money deposit if something that was specified ahead of time in the contract goes wrong. For instance, the earnest money would be returned if the house doesn’t appraise for the sales price or the inspection reveals a serious defect – provided these contingencies are listed in the contract.

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