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Does Earnest Money Get Returned? Key Takeaways Earnest money is essentially a deposit a buyer makes on a home they want to purchase. A contract is written up during the exchange of the earnest money that outlines the conditions for refunding the amount. Earnest money is always returned to the buyer if the seller terminates the deal. Prospective buyers forfeit their earnest money if they decide to back out of a purchase. Article Sources.
Investopedia requires writers to use primary sources to support their work. However, it is rare that a residential real estate transaction does not include an earnest money deposit. Although the amount of the earnest money deposit varies, it is usually enough to motivate the buyer to take whatever measures are necessary to perform as outlined in the purchase contract within the time-frame specified.
When you are ready to make an offer on a house, be aware that an earnest money deposit will be requested. Be prepared to write a check, transfer the funds or provide the deposit using whatever method you utilize for making payments.
And, it provides that if written acknowledgement of the earnest money deposit is not provided to the seller within a specific time frame, the seller may terminate the contract.
Not all real estate purchase contracts provide a specific time-frame for depositing earnest money. In those cases, earnest money must be deposited in the escrow account within a reasonable time after receipt of the offer or contract acceptance depending on the language in the contract.
It is recommended that this deposit be made within 24 to 48 hours of receipt, unless the contract provides for a different time-frame. Administration of the earnest money deposit falls under state regulation to protect the consumer. When a seller accepts your offer, they take their property off the market while waiting for the final closing.
In theory, you could make multiple offers on properties, taking them all off the market, then pick one at the last minute. The other sellers would then be forced to start over with listing their homes, costing them time and money. And if you change your mind, the seller will be compensated for their efforts. Every area has different laws governing real estate transactions and contracts. But very few of them require earnest money.
They are so common, most sellers expect to see earnest money included in your written offer. You can also offer to pay a fixed amount, trying to keep it within the average range. Your Realtor can give you an idea of the market trends to help you decide how much to offer. In a slow market, you might be able to offer a lower amount for earnest money. Sellers might also be willing to accept a lower amount if the house has been languishing on the market.
But in a popular neighborhood or in a hot market, there may be multiple offers on each house. But under specific circumstances, your funds will be returned to you. The home will have to pass inspection. If the inspection finds major repairs are necessary, you and the seller can renegotiate the contract.
At this point, one of three things will happen. Most mortgage lenders will require the home appraisal come in for, at minimum, the amount of the loan. Lenders want to be sure they can sell the home for at least the money they are owed. Most of them will refuse to offer a mortgage for more than the house is worth.
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