When Does Earnest Money Go to the Seller?

When Does Earnest Money Go to the Seller?

Here’s some advice on how to protect your earnest money deposit.

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The earnest money deposit is one of the most important and misunderstood parts of a real estate transaction. Its purpose is to protect the seller while the buyer performs their due diligence and finalizes their loan. If everything goes well, that money goes toward the down payment at closing. However, there are instances where that earnest money will be forfeited and go to the seller.

Here are three of the most common:

1. When a buyer waives contingencies. This situation is becoming more and more popular in this strong seller’s market. Buyers are waiving contingencies to win bidding wars. The two most common waived contingencies are the financing and inspection contingencies. In most cases, a buyer will retain their earnest money if there are major defects found in the home inspection or their loan is not approved. When you waive either of these contingencies in your offer and back out, the seller gets that money.

A case of buyer’s remorse can turn into a painful financial loss.

2. When a buyer ignores the timelines. Time is of the essence in a real estate transaction. The buyer has a certain amount of time to complete their due diligence. If those time frames are ignored by the buyer, that gives the sellers grounds to take the earnest money and terminate the transaction. As long as the buyer can show that they’re working in earnest to complete their inspection and finalize their loan, they’re protected. If you’re intentionally dragging your feet, however, there’s a good shot that your earnest money will go to the seller.

3. When a buyer gets cold feet. The purchase agreement protects both sides. When a buyer makes their offer and then backs out for no reason, the earnest money is part of the protection for the seller. A case of buyer’s remorse can be more painful than just a lost deposit.

We make sure our buyers are ready to go and in a position where they won’t lose their earnest money. If you have questions for us about this or anything else related to real estate, don’t hesitate to reach out via phone or email. We look forward to hearing from you soon.

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