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How Can a Buyer Get Their Earnest Money Back?

By Bill Gassett | April 17, 2023

You must put up an earnest money deposit when you buy a home. The purpose of earnest money is to show you're serious about buying. It also protects the seller should a buyer bail from the transaction without a legitimate reason.

Many people refer to earnest money as a good-faith deposit. Buyers can lose these funds when they do not follow through with their contractual obligations in a real estate transaction.

However, common contingencies offer the buyer protection in most real estate contracts when they cannot finalize a transaction. We will look at some of the most common ways a buyer's earnest money is refundable. It is not uncommon for buyers or sellers to ask who gets to keep the earnest money.

Buyers and sellers must follow their obligations to ensure the transaction is finished.

Ways a Buyer Can Get Earnest Money Back
What Are The Ways a Buyer Can Get Their Earnest Money Back?

What is Earnest Money in Real Estate?

Earnest money is a security deposit the buyer makes to show good faith in a real estate transaction. It is a form of assurance that the buyer is serious about buying the property and will follow through with the purchase.

The amount of earnest money typically varies from 1-5% of the purchase price, depending on the buyer's agreement with the seller. The exact amount of earnest money a buyer comes up with will be dictated most often by local real estate customs. It is held in escrow until closing or until the buyer or seller terminates the contract.

Earnest money deposits can be used as leverage in negotiations. For example, the buyer can offer a higher earnest money deposit to sweeten the deal for the seller and make it more attractive.

The seller can keep the money when a buyer defaults on their obligations.

Reasons a Buyer Can Get Their Earnest Money Deposit Back

Buyers can get their earnest money returned to them in several ways. Buyers usually have real estate contingencies that could let them escape the sale. Let's examine more closely how a  buyer's funds can be returned.

Home Inspection Results

Buyers unsatisfied with the home inspection results can terminate the real estate transaction and get their earnest money refunded.

A home inspection is an essential step in the home-buying process as it helps identify potential issues with the property.

If the inspection reveals any major problems the buyer feels uncomfortable with, they can opt out of the transaction and get their earnest money back. This is why buyers must know their rights and understand their contracts.

Furthermore, it's also important for buyers to do their due diligence on the property before signing a contract.

Due to the home inspection results, the buyer must provide written notice of their intent to terminate the contract. In the notice, they must cite the reason for terminating the contract.

The buyer must also ensure they comply with the contract's timeline and all other requirements to terminate the contract and get their earnest money refunded successfully.

Unsuccessful Getting a Mortgage

Another way buyers can get their earnest money refunded is if they cannot procure financing. When buyers cannot obtain a loan or other financing to complete their real estate purchase, they can request their earnest money returned.

The buyer must provide written notice of their intent to terminate the contract due to their inability to secure financing. The buyer must also ensure they comply with the contract's timeline and all other requirements to terminate the contract and get their earnest money refunded.

In some cases, the buyer may have to provide proof of their unsuccessful attempts to secure financing. This could include denial letters from lenders, proof of unsuccessful loan applications, or other documents.

The Property Does Not Appraise For The Purchase Price

When a buyer has an appraisal contingency, they can terminate the sale if the appraisal does not come in at the purchase price or higher. This contingency is included in the purchase contract and allows the buyer to back out and receive a refund of their earnest money deposit if the appraisal does not match the purchase price.

The buyer must provide written notice of their intent to terminate the contract due to the appraisal results. As with other contingencies, the buyer must follow the timeline protocol for a response.

Home Sale Contingency Fails

A home sale contingency is a clause in a sales contract that allows a buyer to back out of the purchase of a home if they cannot sell their current home by a certain date. This type of contingency is often used when a buyer needs to sell their current home to purchase a new one.

If the buyer cannot sell their current home by the required time, they can terminate the real estate transaction and get their earnest money refunded.

There is a Problem With The Title to The Property

A buyer can get their earnest money back if there are title problems on the property that cannot be solved by an agreed-upon date. The title to a property is a legal document that outlines the ownership rights and liabilities of the property.

To legally transfer property ownership, the title must be clear of any liens or encumbrances.

When a title is unclear, problems can arise that can impede the transfer of ownership. As a result, buyers often include a title contingency in the purchase contract that allows them to back out of the transaction and get their earnest money back if the title is unclear by a certain date.

If the title company or attorney cannot clear the title by the agreed-upon date, the buyer can terminate the contract and get their earnest money deposit returned.

The Seller Changes Their Mind, and The Buyer Frees The From the Contract

If a seller changes their mind and wants to terminate a real estate contract, the buyer can choose to release them from the agreement. In this situation, the buyer would be entitled to a refund of their earnest money deposit.

When a buyer releases the seller from the contract, they give up their right to purchase the home and leave the transaction. As a result, the buyer will be refunded the earnest money deposit put down at the beginning of the transaction.

It should be noted that buyers don't have to let sellers out of contracts they have signed. If the seller breaches the contract, a buyer can sue for performance and would likely win.

Final Thoughts on Earnest Money

It is vital for buyers and sellers to understand their obligations when signing a real estate contract. There is a significant amount of money at risk in most circumstances.

Without understanding what you're signing, you could open yourself up to a large financial loss. Getting your money back may not be possible when you don't follow the contract properly.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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