When you buy a home in Tampa Bay, you make an earnest money deposit. Sometimes, the seller is entitled to keep this cash. Here’s what you need to know.
When Can a Seller Keep Your Earnest Money Deposit?
When you make an offer out of home, you usually accompany it with an earnest money deposit. Earnest money deposits typically range between 1 and 3 percent of a home’s purchase price. This money is designed to show the seller that you’re serious about making the purchase, and it comes out of your own pocket. Many people think of this deposit as putting their money where their mouth is.
If all goes well with the transaction, the earnest money deposit is applied to your down payment when you close on the deal. It may also be used to cover some or all of your closing costs.
But sometimes things don’t shake out that way. In some cases, sellers are entitled to keep a buyer’s earnest money deposit – even when the buyer doesn’t end up buying the home.
Related: What to do if your appraisal comes back low
A Word on Contingencies
Contingencies are conditions that must be met in order for a transaction to go through. Your real estate agent will build contingencies into your contract that protect you. For example, your agent will probably build a home inspection contingency into your real estate purchase contract. This contingency says that you have the right to hire a home inspector, and if the inspector uncovers any deal-breaking issues with the home, you get to walk away from the transaction and take your earnest money deposit with you.
However, if you don’t have an inspection contingency built into your contract and choose to walk away from the deal because there’s something wrong with the home, the seller may be entitled to keep your earnest money deposit.
In addition to inspection contingencies, financing contingencies are very common. These types of contingencies say that if you can’t get the money to purchase the home, you can walk away from the deal. After all, nobody wants to be on the hook for purchasing a home they don’t have the money to buy. Naturally, you do need to make a good faith effort to secure funding to buy the home – but if everything falls through, you can’t be forced to buy it.
Many real estate purchase contracts include home appraisal contingencies. Usually, when someone takes out a mortgage to purchase a home, the lender sends an appraiser to gauge how much the property is worth. If the property is worth less than you are asking to borrow, your lender will tell you it’s a no-go; they’ll only give you the amount their appraiser says the property is worth.
If this happens and you have an appraisal contingency built into your contract, you have the right to cancel the whole transaction. However, you may instead choose to come up with a difference on your own or negotiate with the seller to lower the sales price.
Contingencies are incredibly important in real estate. If you’re thinking about waiving contingencies, which means you are asking your real estate agent not to put them in your contract, you need to make sure you’re extremely well informed about the potential consequences.
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Other Times Sellers Can Keep Earnest Money
If you get cold feet, you can consider your earnest money gone. That’s because when you back out of a contract without a valid reason – such as when there’s no contingency in your contract to protect you – the seller is usually entitled to keep that cash. That’s the way the system works, and it helps provide sellers with some compensation for having to start the entire transaction over again with a new buyer.
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