HomeReal EstateWhen Do Home Buyers Get An Earnest Money Deposit Refund?

When Do Home Buyers Get An Earnest Money Deposit Refund?

Did you know that around 5% of pending house transactions fall through? In a typical house transaction, the earnest money deposit is used for the home buyers down payment or closing fees.

However, despite the best efforts of all parties involved, home transactions sometimes face a problem, and the acquisition is not finalized. What circumstances will result in the home buyers losing their deposit, and what events will result in a full refund?

What Is Earnest Money?

When purchasing a property, you will likely hear the phrase “earnest money.” If you’re a first-time home buyer, the term “earnest money” may seem strange. An earnest deposit is a money put up in a real estate deal to demonstrate that you are serious about acquiring a particular property.

It is sometimes referred to as a “good faith deposit” since it demonstrates to a seller that you are serious about purchasing their house.  Without earnest money, a property buyer might walk away from the deal without repercussions. Earnest money deposits keep a buyer’s feet to the fire to fulfill their promises.

Thus, earnest money’s goal is to give a buyer an incentive to fulfill their responsibilities with the purchase.

How Does Earnest Money Deposit Work?

When a buyer discovers a residential property and expresses an interest in purchasing it, they contact the seller. However, the seller always demands a guarantee to ensure that the buyer shows up and that the property is not relisted.

As a kind of confirmation, the home buyers gives them a refundable good faith deposit, often known as a pre-down payment. Surprisingly, this down payment does not bind the buyer to purchase the home. However, it shields the seller from possible financial loss if the agreement breaks through.

Step-By-Step Process:

• Both the home buyers and sellers sign a real estate contract outlining the circumstances of the transaction. It also guarantees the buyer that the property meets all market criteria.

•  The home buyers pays the good-faith payment to the seller to demonstrate their sincere interest in the transaction. The money is held in an escrow or trust account by a real estate broker or title business.

The deposit is flexible and might be a percentage (1-3%) or a set sum of the property’s purchase price. It changes according to housing market demand and property value.

•  After paying the security deposit, the buyer has the right to view the property from any angle within the contingency period.

•  The buyer initially has the home appraised. And, if buyers learn that the house is worth less than the asking amount, they may pull out of the sale.

•  Property buyers might also request a termite examination or a structural check. If buyers discover any structural issues with the home, they have the option to reject the sale.

•  They may get their earnest money back promptly after advising the seller of any problems detected during the inspection.

•   If the contingency time has expired and the buyer backs out at the last minute, the seller may retain the deposit and use it to compensate for the falsified assurance.

What Is A Reasonable Earnest Money Deposit?

The earnest money put up by a buyer is dictated by local norms and might vary considerably. It is usually between one and five percent of the purchasing price.

The amount of earnest money received might also fluctuate based on the present situation of the real estate market. If the market is competitive, the quantity might rise.

Buyers will boost their deposits in a hot market with strong demand to make their bids more appealing. The earnest money for a new house will rise to 10 percent in several places. Because of building rules, the sales contract for further development may change.

When the purchasing price of real estate is considered, it might be a significant amount of money to lose.

Who Holds The Earnest Money Deposit?

A variety of parties may hold earnest money. The seller’s real estate business, an authorized escrow company, or a real estate attorney is often kept.

At closing, all funds kept in an escrow account are correctly accounted for. These funds cover the cost of purchasing a home. When you make an offer on a property, you pay your real estate agent an earnest money deposit check.

If your offer is accepted and the property becomes under contract, the funds will be deposited as soon as possible. If your request is not received, your deposit will be returned to you.

Earnest money might be paid using a personal check or a wire transfer. Earnest money should not be confused with a down payment; they are not the same thing.

Is Earnest Money Refundable?

Earnest money is a refundable security deposit, but only under particular conditions, according to the definition. The real estate contract includes provisions that allow the buyer to avoid becoming engaged in a poor purchase after paying the deposit.

The buyer should act within the contingency timetable because the money will not be reimbursed or held by the seller after it expires.

Appraisal Contingency:

Suppose the buyer discovers that the selling price of the property is more than what it should be based on its condition. In that case, they have the option to terminate the transaction and get a refund.

Inspection Contingency:

The buyer can have the property examined for structural faults or termites. If dissatisfied after the property assessment, they have the right to cancel the agreement and receive a refund. 

Financing Contingency:

Suppose the buyer’s loan application or lending decision remains pending for any reason (other than something for which the buyer is responsible). In that case, they have the right to cancel the real estate contract and receive a refund.

Whatever the cause, the cancellation should occur before the contingency time expires. If the buyer reports any problems or attempts to cancel the transaction later, they will not be refunded. However, if the seller cancels the contract, the buyer will get a return of the earnest money.

In Which Situations Can A Buyer Get Their Earnest Money Back?

It’s scarce for a buyer to lose their earnest money in a stock market. Suppose the buyer adheres to the specified timeframe and purchase contract. In that case, they have multiple options to breach the agreement and withdraw their earnest money. Here are eight typical scenarios in which purchasers often get their earnest money back:

Issues That Arise During Due Diligence:

Most contracts have a due diligence deadline between seven days and two weeks following the agreement date. A buyer schedules fact-finding research like a house inspection, appraisal, and title search during the due diligence period, which varies by state. During this time, the buyer can terminate the contract for any reason related to the state or property’s status.

The Home’s Appraisal Comes In Low:

The appraisal contingency deadline is typically two to four weeks later than the agreement date. Suppose the house appraises for less than the negotiated purchase price. In that case, the seller can reduce the purchase price to the appraised value to keep the buyer locked in. The buyer may withdraw their earnest money if the seller does not reduce the purchase price.

Buyer Runs Into Financing Trouble:

The funding contingency deadline is three to four weeks following the agreement date. Suppose the buyer cannot get mortgage clearance. In that case, they may cancel the contract and retain their earnest money deposit, thereby holding the bank liable for the failed procedure.

Problems With The Seller’s Disclosure Document:

Most states require sellers to disclose many of a home’s problems in a disclosure agreement. It’s uncommon, but if the buyer learns that the seller has not revealed known concerns with the house, they’re more likely to lose faith in the deal and cancel it. It might occur even if the buyer waives their entitlement to the due diligence deadline.

Buyer’s Current Home Doesn’t Sell In Time:

The Home Sale Contingency states that the home buyers will not pay two mortgages simultaneously. If the buyer’s house does not sell within the time frame specified in the contract, they are entitled to their earnest money if they back out of the sale.

Title Search Reveals A Lien Or Ownership Issue:

A complete title search is included as part of engaging a title firm to guarantee that no other parties have ownership claims to the residence. Suppose the buyer discovers a problem with the title, such as a lien or irregularities in ownership. In that case, the buyer has the option to cancel the contract and return the earnest money deposit.

Surprises In The Final Walkthrough:

A final walkthrough is not compulsory, although it is often suggested before closure. If any agreed-upon repairs are not done at this time or fixtures are removed in violation of the sales agreement, the buyer has the right to cancel the deal and keep their earnest money.

Termination Of The Deal By The Seller:

The seller may end the contract early for many reasons in various instances. If the seller violates the agreement improperly, the buyer may be entitled to more than a refund of eager money, including the right to compel the sale, receipt of an equal amount to the earnest money from the seller, and, in certain situations, a lawsuit.

And Then There’s Closing, Technically:

It is technical, but the buyer will get their earnest money deposit back as a credit against the down payment. It’s just a little bit of a down payment prepayment. If the buyer wishes, the funds may be used to cover their closing fees.


As you’ve learned, whether or not earnest money is refundable is determined by the terms of the real estate contract and whether or not you followed them.

You will be allowed to retain your earnest money if you purchase a house and fulfill the requirements. If you don’t, the vendor is free to maintain your money. It is critical to remember that most real estate transactions are legally binding papers. Consult a lawyer before signing anything if you don’t understand what you’re doing.

Frequently Asked Questions (FAQs):

When Should You Ask For Your Earnest Money Back?

Suppose the house appraises at a lower rate than the buyer’s offer, and the seller refuses to modify the price. In that case, the buyer may request a refund of the earnest money.

Is Earnest Money Refunded After A House Inspection?

Yes, the earnest or token money is refundable, but only under particular circumstances and before the contingency dates. Customers who believe the offer is unsuitable are entitled to a refund. They must also verify that the flaws detected during the inspection are specified in the contract.

Read More Blogs:
Is Life Insurance A Good Career Path?
Is A Hotdog A Sandwich? And Why That Matters For Us
Can You Eat Peanut Butter With Braces?
Amazon GPT44X

Social Tomatoes
Social Tomatoeshttps://socialtomatoes.com/
Experts, from all over the world, share their experiences at Social Tomatoes regarding various products, the latest fashion, cosmetics, travel destinations and experiences, lifestyles, health and much much more. Our team of experts has Graduate and Post Graduate degrees from reputed universities of Canada, China, Pakistan, the UK, and the USA. These Experts are Practicing Professional who brings the best reviews for their readers.


Please enter your comment!
Please enter your name here

twelve + three =

- Advertisment -

Most Popular