AnswerMan Answers: Where Does My Earnest Money Go?

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Real Estate

One thing almost everyone is confused about in a real estate transaction is earnest money... why do I have to pay it? Will I get it all back? Does someone named Earnest get a cut!? It's enough to give anyone a headache! I answer the question for you simply here.

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A question I get on almost every offer I write is: What happens to my Earnest Money?

The answer is, it depends on what you put in your contract. Earnest money is typically immediately deposited in an escrow account and held until closing, and at that time it applies to your purchase either as part of your down payment or applied to your closing costs. If you’re getting a loan that doesn’t require a down payment (such as VA), and if the seller is paying your closing costs and prepaids, then you could get it back on closing day! That’s what happens if everything runs smoothly and you close the sale.

What if things don’t run smoothly and you do not close? If you have a contingency that addresses your reason for not closing you should get your earnest money back, for instance, if the home does not pass inspection. But beware! if you remove your contingencies and then change your mind, you could lose your earnest money. Or if you, in an attempt to make your offer more competitive, write an offer with no contingencies, you risk losing it. Or, if you don’t meet the deadlines you agreed to when you signed the contract you could lose your earnest money. So protect yourself when you write your offer. Get a licensed real estate agent to help you choose your contingencies wisely and make sure you meet all the deadlines in your contract. And, above all, act in good faith in all you do. Then you won’t have to worry about losing your earnest money!

If you need a licensed real estate agent or have questions please feel free contact me at 615-394-1823, and I’ll be glad to answer your questions!

Verlyn Steward, Real Estate Answerman