There’s a lot of misunderstanding about the earnest money deposit in a real estate transaction. The purpose of this deposit is simply to show that the buyer is earnest – that they have some skin in the game, that they just can’t walk away from the transaction without so much as saying goodbye. The truth of the matter is, the earnest money deposit is totally refundable – up until the point when the buyer releases all their contingencies on the purchase of the property. Once the buyer releases all their contingencies, the deposit at that point becomes non-refundable – in theory. I say “in theory” because the deposit is held in escrow, which is a neutral 3rd party – and money does not leave escrow unless both buyer and seller agree where the money is to go. Even after the buyer releases all their contingencies, if the deal should fall apart, it’s uncommon for a buyer to just blithely sign the paperwork forking over the deposit to the seller – they will usually “negotiate” with the seller to get the deposit back. I say “negotiate” because it’s often more like a threat – the classic tactic for a buyer who does not want to release their deposit to the seller is to threaten to file a lawsuit…and if there is a lawsuit pending on the property, the next buyer’s lender won’t loan on it. In all my 18 years or so in the real estate business, I have only seen 1.5 buyers lose their earnest money deposit, and in both cases it was after the buyer had in fact released all their contingencies. So please just know that the earnest money deposit is just that – a deposit meant to show that you have an earnest buyer who has skin in the game.
The Purpose of the Earnest Money Deposit
The Diminishing Value of a Large Lot (aka Excess Land)
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