How to Protect Your Earnest Money When Buying Real Estate

When you are buying a house or any real estate, as the buyer, you are required to put down earnest money, usually $1,000. The earnest money is considered to be a deposit on the house purchase. The earnest money serves to notify the seller that the buyer intends to purchase the house or real estate they are selling. Here are ways for the buyer to protect the earnest money if a real estate transaction doesn't work out.

Difficulty: Moderate

Instructions

Things You'll Need:

• knowledge

1. READ THE CONTRACT. Most real estate contracts are standard forms, but each real estate contract becomes unique with terms stipulated by both the seller and the buyer. Know the contract and its terms.

2. INSPECTION. During the first 10 days after the real estate contract is signed, the buyer has the right to have the house inspected. If agreement is not reached by the seller and the buyer on issues found during the inspection, usually the buyer can get their earnest money returned.

3. DISCLOSURES. If a seller fails to disclose a fact about the house or real estate to the buyer before the contract is signed, the nondisclosure can be grounds for the buyer to cancel a real estate transaction. The buyer would get their earnest money returned.

4. LOAN APPROVAL. If the buyer is unable to obtain final loan approval without conditions by the close of escrow date, the buyer has grounds to cancel the contract. The buyer must give written notice to the seller and/or title agency (or whatever terms as are written in the contract). The earnest money would be returned to the buyer.

5. COMMUNICATION. To protect your earnest money when buying a house, remember to keep in touch with your real estate agent and lender to ensure the transaction is progressing. Communication with all parties is key to a successful real estate transaction.

Tips & Warnings

• Get an inspection done as quickly as possible after signing a contract to know if major issues exist with the house.
• Communicate with the real estate agent about any concerns. If you don't get the results you want, speak to the real estate agent's broker (boss).
• Have an attorney read the contract if you have questions or you feel the need to protect yourself.

[anixon84]

on 1/24/2009 We are about to go out hunting for a new house, this should come in handy! Thanks!

[jamaclassics]

on 1/22/2009 In most states you can add a contingency clause to the standard purchase contract stating that you will get your earnest money back under certain conditions, (active termites, not meeting FHA codes/requirements, low appraisals, structural problems, etc. Always put this clause in "Subject to inspection" before you sign. There is no law that says you have to put down any earnest money. Realtors push you to do this. I have bought with one dollar down, or nothing. If your realtor won't include addendums or add clauses to protect you, get another realtor! (or don't use one)

[klnygaard]

on 1/21/2009 very good info to know

[hollie1974]

on 1/21/2009 Very good and well written article! TY!

[Traqqer]

on 1/21/2009 Good point...my mother in law lost this money because she wasn't careful.