Posted on: 22 August 2016
A common misconception about earnest money is that if the sale of a home does not go through, the buyer loses his or her money. Although that is true in some scenarios, it does not apply to all. If you are in the process of buying a home, it is important to understand when you can and cannot lose your earnest money.
When Can You Lose Earnest Money?
When you and the seller have a purchase contract, there are deadlines included for every aspect of the home buying process. For instance, a deadline is usually included for having the home inspection completed. If you fail to follow the deadlines, the seller has the right to end the sale and keep the earnest money. It should be noted that the seller also has the right to allow more time for the sales process.
Another reason you could lose your earnest money is that you changed your mind about buying the home. Depending on the language in your purchase contract, the seller gets to keep the money because you were at fault for the sale not completing. The earnest money is viewed as protection for the seller because he or she had to take their home off the market and potentially lost an opportunity to sell the home.
When Can You Keep Your Earnest Money?
Whether or not you keep your earnest money depends largely on the language in your purchase contract. For instance, some buyers include a contingency in their contracts that would allow them to back out of the purchase of a home if they are unable to secure financing. If your contract does include this contingency, pay attention to the financing-related deadline. You must back out of the contract before the deadline date or you could potentially lose your earnest money.
Another possible reason that you could keep your earnest money is if the seller failed to live up to his or her responsibilities according to the purchase contract. For instance, if the seller agreed to make repairs on the home by a certain date and he or she did not, you could choose to back out and keep your money.
Taking certain measures to protect your earnest money is important. Your real estate agent can identify other possible scenarios that could impact whether or not you can keep your money and offer advice on what to do to protect yourself.Share