Who Keeps the Earnest Money Deposit?
Like many things in life, the answer to the question “Who keeps the earnest money deposit?” is…it depends. Let’s look at a few examples:
- The contract closes: the earnest money goes towards the buyer’s down payment or closing costs.
- The contract is terminated by the buyer during the home inspection contingency: If an issue with the house is found during the home inspection, the buyer may terminate the contract and keep their earnest money if they do so by the home inspection contingency deadline, and the contract specifies that they will receive their money back. Sometimes, buyers will include a waiver in their contract to make their offer more competitive or entice the seller into accepting their offer; in that case, the seller will receive the earnest money.
- The contract is terminated by the buyer during the appraisal contingency: Like the home inspection contingency, the appraisal contingency is built into the contract as an “out” for the buyer. If the buyer will be borrowing money through a mortgage to buy a house, the lender will require the home to appraise for a certain amount in order to cover the loan. If the appraisal comes in lower, the buyer and seller will need to negotiate a new purchase price, or the buyer must cover the difference in appraisal and purchase price out of pocket. Alternatively, the buyer may usually terminate and walk away with their earnest money, but this depends on the terms of the contract they signed.
- The contract is terminated because the buyer gets cold feet: The seller will receive the earnest money deposit as consolation for the canceled contract.
- The contract is terminated because the seller gets cold feet: Although incredibly rare, if the seller terminates a contract, they will not get the earnest money. In fact, the buyer can usually sue the seller for damages or to force the contract to go through.
Although buying or selling a home can be a whirlwind ride, you can feel reassured in the knowledge that most contracts go through to closing without major roadblocks.
Whether you are the buyer or seller in your next real estate transaction, you want to know that your earnest money deposit is safe until closing. If you are in the market for escrow services, look no further than Clear Title. Our company is led by a board-certified real estate attorney with decades of experience, so you know your money will be secure until closing. Questions? Want to get started? Call one of our conveniently located offices:
Pensacola: (850) 361-4029
Pace: (850) 994-3838
Pine Forest: (850) 202-8518