In real estate transaction, everything you hear and all the promises made are just words until they are put into a written contract. It does not mean anything when you shake hand with the seller and say that you will buy the house. You want confirmation that the seller will keep the house for a certain period so that you can have some time to collect the money? Deposit cold hard cash in an escrow, which is known as earnest money.
Earnest money is not more than 1-3% of the total home price. It will be added to the closing costs when you finalize the deal. However, the seller will get it as a compensation if you call off the deal with no good reason. Is there any way to get the money back? Let’s find out:
The Appraisal Returns Less Value
If the appraisal value of the house is less than what you have agreed to pay on, you will get the earnest money back. However, you have to have an appraisal contingency in that case, which gives you the freedom of buying the home at the appraised value.
The contingency also gives you leverage to negotiate with the seller for a lower price or giving you some benefits in the form of updates, renovation, or covering the closing costs.
The Home Has a Major Defect
You can back out of the deal without losing the money if the home inspection reveals a major flaw in the structure or any other parts of the house. Nevertheless, there should be a home inspection contingency for you to secure that deposit.
There are many minor flaws that can be fixed but some huge issues including pollution, flooding, electrical, and molding problems give you the ground to call the deal off. The sellers are also bound to reveal some particular defects in the disclosure agreement.
The Lender Refuses to Finance
You can’t purchase a home if no lender agrees to lend you the money. In that condition, a financing contingency will help you to get back the earnest deposit. Remember that you can only claim the money if the lender does not agree to loan, not when you refuse the mortgage because you don’t like the interest rate.
You Haven’t Ignored the Timeline
The agreement between you and the seller should mention a specific time period for the closing. You are required to secure the loan, complete the inspection, and get everything ready for the closing. The seller may extend this time frame if everything goes well. However, if there is a clause in the contract stating a specific date for closing the sale, you are bound to do everything within that period. If you show a valid reason for canceling the deal within that time, you will get the deposit back.
The Seller Calls off the Deal
It may sound ridiculous but you will get the earnest money back if the seller decides to cancel the deal for any reason. The seller may find another lucrative offer or make a decision not to sell at all. Whatever the reason is, your consolation will be getting back the earnest deposit.