An earnest money deposit is a money deposit put down by the buyer in a real estate transaction that shows the seller the buyer is serious about purchasing the property. When a buyer signs a contract, they put down earnest money, anywhere in the range of $1000 to upwards of $50,000, to show how serious they are about purchasing the real estate.
The earnest money is held by a third party, (typically a lawyer or real estate agent), until the day of the closing. When the closing day comes, the funds are released toward the buyer’s down payment.
However, what happens to the money if the deal is terminated? Basically, you have to know what the fine print of the contract you signed says. Usually, if the seller is the one that cancels the deal, there are no questions asked and the money is returned to the buyer. However, if you are the buyer and want to cancel the contract, your reason why must comply with one of two conditions in the contract for you too be able to get your money back. Either you cannot obtain financing according to the terms laid out in the financing contingency and you send a cancellation notice before the expiration of the financing contingency term; or you obtain an inspection by a certified inspector, find that one of the major components of the real estate is not functioning for its purpose, and you send a cancellation notice before the expiration of the term in the inspection paragraph of the contract.
It is very important that your attorney stay on top of these contingency dates for you. When I represent you on your real estate transaction, I will be the one working on your deal. I will handle all your negations personally.