An earnest deposit is an amount of money that a buyer puts into escrow as good faith to show that they will complete the purchase of a property. The amount of money is an indication of how serious they are and of their confidence in their ability to close the sale. If the buyer does not complete the sale then the earnest deposit goes to the seller, right? Not so fast. It depends.

There are several reasons why a buyer may not complete a sale but would not forfeit their earnest money. First is a home inspection contingency. If the buyer is not satisfied with the results of the inspection or if the seller is unwilling to do the requested repairs, then the buyer would receive the earnest deposit back.

Another reason for the deposit being returned to the buyer is that their financing fell through. Even a pre-approved buyer can have their financing denied if they lose their job, have negative information reported to the credit bureaus before closing, changes marital status, etc. Most contracts state that the earnest deposit will be returned to the buyer in the event that the lender does not approve their financing. The standard Omaha Area Board of Realtors purchase agreement is no different.

The Termite Inspection is also a potential deal killer. The standard Omaha Area Board of Realtors purchase agreement states that if termites are found and if the cost of a termite treatment and repairing the termite damage exceeds 2% of the purchase price then either party can cancel the transaction. If either party should back out, then the deposit is returned to the buyer.

What if a buyer just changes their mind and doesn't want to buy the house? The seller gets the earnest deposit then, right? You would think so, but it is not that easy. In order for either party to be released from a purchase agreement both parties need to sign an earnest deposit release form. This form terminates the transaction and states who will receive the deposit. Both parties need to be in agreement on the distribution of the earnest money. If they cannot reach an agreement, then the matter will need to go to court. Without having agreement on who should receive the deposit and prior to a judge ruling on the matter, both parties are in limbo. The buyer cannot buy another property and the seller cannot accept another offer.

As you can see there is more to an earnest deposit than most people recognize. Be sure to keep the above information in mind before entering into an agreement to purchase real estate.

Trumm Team - Alliance Real Estate, Omaha, NE

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