Ways You Can Lose Your Earnest Money Deposit

Reblogger Mott Marvin Kornicki
Real Estate Broker/Owner with Waterway Realtors® • South East Florida • Real Estate Brokers Florida RE Broker
Original content by Bill Gassett 91362

How You Can Forfeit Your Earnest Money

Buying a house is an expensive undertaking. There are so many things to pay for, and if you are not careful, you can easily lose money. In most real estate transactions, the earnest money is one of the things you are required to pay.

Many home buyers want to know how earnest money works. Maximum Real Estate Exposure has one of the most comprehensive articles on everything you need to know about earnest money, including how it differs from a down payment.

Basically, the earnest funds is an amount of money a home buyer pays to the seller as a sign of good faith. It ensures a buyer will proceed with the transaction according to the contract. This amount is held in escrow until the buyer signs on the dotted line, in which case the money goes towards paying for the house. This deposit shows the seller you are serious about the offer you make.

Usually, it is about 1-5% of the selling price of the house. In a competitive market, your earnest money deposit can go up substantially. In fact, it might be one of the things your real estate agent recommends you increase in order to make your offer more attractive to the seller.

If you change your mind about the house and wish to pull out, you get your money back as long as it's because of a contingency that wasn't met in the contract. That noted it is important to ensure that you read the contract carefully before writing the check. This is because there are certain circumstances in which you could lose your money.

Here are 3 situations in which you will lose your earnest money:

You Run Out of Time

In the contract for the purchase of the house, there is a timeline that must be adhered to by both buyer and seller. Home inspections and acquiring financing should be done as stipulated in the timeline. For example, if you find defects in the house and wish to back out of the deal, you must notify the seller in writing prior to the expiration of your home inspection contingency.

The same will happen if you cannot get financing to buy the house and don't let the seller know under the provisions of the "mortgage contingency." The mortgage contingency clause will have an express date by which a buyer needs to procure their financing.

If the seller gives you a mortgage extension, ensure that it is done in writing. This is why it is advisable to get your loan pre-approved so timelines are met as they should.

Keep in mind the seller is within their legal right to keep the earnest money if you don't notify them you can't get your mortgage as established under the mortgage contingency clause. In this case, you would be in breach of the contract.

Cold Feet on Buying

Buying a house is a major undertaking. You may find that even after choosing a lovely house you are still not sure it is perfect for you. You may wonder whether it will suit the growth that will take place in your family. If you decide you no longer want the house other than one of the contingencies in the contract, then you will lose your deposit.

The seller is within their rights because he or she has spent time and money on the house. By taking their house off the market they stopped receiving bids. You may have lost them money.

In this circumstance, you may open yourself up to even more legal trouble. This is because the seller will end up incurring more costs because of your actions.

Waiving Contingencies

Contingencies are put in place to protect a buyer. There are three typical contingencies in real estate contracts. They are the financing contingency, inspection contingency, and the appraisal contingency.

The home inspection contingency allows the buyer to walk away if the house is found to have some defects by a professional home inspector. The key, however, is following the contingency clause in the contract. Buyers should have a strong understanding of the most frequently asked home inspection questions.

The financing contingency allows you to walk away with your escrow money if you do not get a mortgage. However, for this to happen, the contingency has to be in your contract from the get-go. Real Estate agents and mortgage brokers should be a part of your team that keeps you informed of important deadlines.

Here are some great questions to ask a mortgage broker when buying a home.

The appraisal contingency makes it possible for you to walk away if the selling price is above the property's value. You will get your deposit back. In case you waive the contingencies, then you will lose money if you back out. Even if you have good reasons for it.

If you have other contingencies in your contract make sure you follow them. By not doing so, you can open up the risk of losing your deposit.

Non-refundable Deposit

If you agree to a non-refundable deposit, you cannot expect to get your money back when you change your mind. It is a great way to convince the seller that your mind is made up.

If there are many people who want the property, it may put you ahead. Sometimes the contract states that the earnest money will become non-refundable after a specific period of time. It is very important that you read the contract carefully before handing over the check. If you do not read it carefully, you could lose your money.


Paying earnest money is a way of protecting both your interest and those of the seller. Ensure that you have read the contract and are certain about the purchase. If you are careful, there is much to gain from making a deposit on a house.

Understand that if you do not follow the terms of the contract your earnest deposit money will be at risk.

Do keep in mind as well that your earnest money is not connected to your house down payment. A significant percentage of home buyers confuse the difference between earnest money funds and the money they put down on the house.

While both are money that comes out of your pocket they are not the same thing.

Other Helpful Real Estate Resources

  • What to think about when buying a fixer-upper - are you thinking about buying a home that needs work? Make sure you have a good idea of exactly what you're getting yourself into. Buying a fixer-upper is often not a cakewalk and turns out to be much more difficult than people imagine.
  • How your road affects the market value - did you know that the type of street your house is located on can have a dramatic impact on the market value? It's true. In the article at Clever Real Estate Guidance, see how your road type will influence the property value.

Use these additional helpful real estate articles to make the best decisions when you're buying or selling a home.


Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.


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Debbie Holmes
John L. Scott - Boise, ID
Gets the job done!

Nice article about earnest money.  I enjoyed reading it.

Nov 20, 2019 03:56 PM #1
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Mott Marvin Kornicki

Waterway Realtors, Notary Public 786-229-7999
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