Earnest Money, Don't Lose It!

I am often asked, "Will I lose my earnest money?"It’s important to understand potential contract contingencies, so be sure to go over the contract with your real estate agent or attorney. Two scenarios that may lead to the forfeiture of your Earnest Money also called Good Faith Deposit are:

 Waiving your contingencies. 

 Financing and inspection contingencies protect your earnest money if your financing fails or the house is beyond repair or anything else written into the contract that is a contingency protected by your earnest money. However, if you waive these contingencies, you forfeit your good faith deposit if the house does not go to close of escrow.

 Ignoring contract timelines. 

 Home purchase contracts often have timelines which the buyer should complete during the purchase process. Failure to complete  of these contingencies within their timeline or close the transaction on the agreed date means you have breached the contract. You may have to forfeit your good faith deposit.

 What if I change my mind?

 Property buyers get their earnest money back if the deal goes south for reasons covered in any outlined contingencies in your purchase contract. Possible examples could include: denied financing approval, appraisal issues or an unacceptable inspection report. Otherwise, there’s little or no chance of a refund. If you change your mind late in the buying process or reasons other than contingencies, the seller can keep the earnest deposit.  It compensates them for the time, money and effort required to list the property again and obtain another buyer.

How can you protect your earnest money deposit?

 The following  could potentially protect your earnest money from fraud or unjustifiable forfeiture:

·       Put everything in writing. Make sure your contract clearly defines what amounts to canceling the sale and who ends up with the earnest money. Include any amendments to details like buyer responsibilities and timelines.

·       Use an escrow account. To avoid trust issues, never hand your earnest money directly to the real estate seller or broker. Let the manager be a reputable third party, such as an escrow company, legal firm, title company or a renowned brokerage firm. Make sure the funds are in an escrow account and obtain a receipt.

·       Understand the contingencies. Ensure that contingencies that protect your interests are in the contract. Most importantly, beware of a home purchase agreement that doesn’t have clauses that protect you.

·       Meet your responsibilities. Real estate purchase agreements usually set deadlines to protect sellers. sure to respond to all questions and provide requested documents from your lender, real estate agent, attorney, HOA or title company in a timely manner, as well as meet inspection, appraisal and closing deadlines to avoid breaching the contract.