Why is earnest money necessary for a real estate transaction? It is a deposit given to the title or escrow company indicating that the buyers are serious and have skin in the game. It also gives assurance to the sellers since upon a breach of it will most likely be given to the sellers as compensation for taking the house off the market. How does a buyer keep from losing the earnest money, read on.
Earnest money and contingencies go together
The main reason a buyer would lose their deposit is by breaching the contract. In order to not lose an earnest money deposit, a buyer must be aware of contingencies, since they provide the buyer an “off-ramp” from the contract.
There are specific “off-ramps” or contingencies in the real estate contract that allows a buyer to cancel. These will include the inspection period contingency, the title report contingency, the appraisal contingency, a contingency associated with the HOA disclosures, and the unfulfilled loan contingency. All of these have time lines associated with them and will assume to be satisfied unless the buyer proactively disapproves or cancels. This is why it is critical that buyers understand not only the contingencies but the timing associated with them. Failure to do so will be like driving past those off-ramps with no ability to go back. Since the escrow company is the neutral third party that oversees the execution of the contract, make sure and involve them in all communication regarding disapproval or cancellation of the contract.
If you’d like assistance in finding that perfect home and receiving an update of homes as they come on the market , click on Send Me Homes I Like. Or if you have questions regarding earnest money and contingencies, feel free to contact me directly at 480-326-8571.