How to Get Earnest Money Back: What Buyers Should Know

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• March 21, 2022
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There are many financial terms that you must be familiar with when it comes to buying a home. One of them is an earnest money deposit. As a buyer, you should know what conditions are associated with this payment and the ways you can get your money back. Is earnest money refundable? 

Is Earnest Money Refundable?

Yes. Earnest money is refundable. However, there are certain circumstances that determine your eligibility for a refund from the home seller. 

You will find out later on what these different situations that qualify you for a refund are. The general idea is that as long as these circumstances are outlined in your buyer’s contract, then you should have no problem getting your money back. It is important that you think about all of the possible circumstances that could arise during the home buying process. This will enable you to include those situations in your contract so you have the right to file for a refund.

Situations When You Can Get Earnest Money Back

An earnest money deposit is also known as a good faith deposit. It is a deposit that you make as a buyer into an escrow account that shows the seller you are serious about buying a property. In general, this deposit is not refundable and should be paid to the seller. But as mentioned above, there are certain situations when you will decide to back out of the home buying process and you might request to get your money back.

So, what are these situations? Under which circumstances is earnest money refundable?

Here are some scenarios when you can get a refund of the earnest money deposit.

Home Inspection Contingency

You can seek refund for your earnest money deposit if there are issues that emerge from the home inspection on the property. In these circumstances, you have the right to negotiate with the seller on getting these issues fixed. If not, or if the seller fails to comply with the conditions you’ve set, you have the option to back out of the home purchase. 

When you decide to back out, you have the right to get your money back.

Appraisal Contingency

A professional home appraisal is an important part of the home buying process. This will give you an idea of the fair market value price of the home you plan on buying. 

If the appraised value of the home is lower than your agreed purchase price, you can negotiate a lower amount for the earnest money deposit. If you can’t agree on the new purchase price, you can get your money back.

Home Sale Contingency

If you plan on selling your current home to buy a new one, there is a contingency plan in place in the event that you are unable to sell. You can choose to back out and get your deposit. This will prevent you from having to pay two mortgages. 

Loan Contingency

In the event that the lender does not approve your loan, you have the option to back out of the contract. This will give you the right to request a refund. 

How to Request a Refund

If any of the above apply to your situation, it is important to formally file a refund request to get your money back. 

The first step is to contact the seller in writing. In your letter to file a refund request, you need to provide documentation and evidence to support your claim. It should be valid and related to any of the above conditions (or any other circumstances specified in the buyer’s contract). 

The next step is to sign a release form, assuming that the seller does not contest your request. The release forms must be completed by both seller and buyer. They should be executed in the presence of an attorney.

When the above steps are completed, you may contact the escrow company. Make sure you notify them of the decision to back out of the contract too. Provide them with a copy of the release forms and other supporting documents. 

If you have completed the necessary requirements, the refund of your earnest money deposit will be processed in a matter of days. 

How to Lose Your Earnest Money Deposit

While an earnest money deposit is refundable, it is not guaranteed. Once you contact the seller and the escrow company about your refund request, they will examine the documents you provide. 

As a buyer, you should know what mistakes to avoid so that you don’t lose the opportunity to get your money back. 

• Inability to meet deadlines. Entering into a contract with the seller about your home purchase also means that you must comply with the deadlines and timelines that they have outlined in the contract. Failure to meet these deadlines also relinquishes your right to get your earnest money deposit.
• Engaging in a bidding war. When there is little inventory on the market, some buyers might be tempted to make multiple offers on different homes in an effort to seize whatever is available. However, engaging in this type of activity can disqualify you for an earnest money refund.
• Agreeing to make the earnest money deposit non-refundable. When you sign a contract after paying for something, it is always a good practice to read the fine print. A lot of buyers have been unable to get their deposit back since they unknowingly signed a non-refundable contract. Not all sellers will let you know about the non-refundable clause to your contract, so you have to be diligent when checking this. 
• Waiving some of the contingencies. As a buyer, you need to think about all of the possible scenarios that could cause the deal to fail. Therefore, you need to include as many contingencies as possible so that you can qualify for an earnest money deposit refund. 

Is earnest money refundable? Definitely yes. Make sure to follow the appropriate steps listed above so you can get your request approved.