6 Sure-Fire Ways To Lose Your Earnest Money
Earnest money is intended to make sure that you remain “earnest” (serious) about your home purchase.
Writing your earnest money check is something you should take very seriously.
Bad things can happen to you if you fail to be “earnest” and adhere to the terms of your purchase and sale agreement.
You’ve probably heard about “Time Is Of The Essence”.
That clause is included in every real estate purchase and sale agreement.
Disregarding deadlines stated in your purchase and sale agreement can cause your earnest money to be forfeited.
Lack of Approved Financing
Your purchase and sale agreement will likely include a deadline for providing proof of approved financing.
Busting that deadline can result in forfeiting your earnest money and your transaction falling through.
You shouldn’t shop for a home without pre-approved financing!
Failing To Close On Time
There’s a reason the closing date is stated in your purchase and sale agreement.
It’s the date when you want to move in.
It’s also the date when the sellers expect to get their money.
If you don’t close on time, it’s quite possible that you will lose your earnest money and not get the property.
I know this sounds a little “tight”, but it really isn’t okay to change your mind about buying a home after your offer has been accepted.
If the terms and conditions of your purchase and sale agreement have been met, you will probably forfeit your earnest money if you change your mind and fail to close escrow.
Per the terms of the Idaho RE-21 Purchase and Sale Agreement, you could also become responsible for numerous transaction costs and seller damages.
If you waive your contingencies (financing approval, home inspection, etc.) in your purchase and sale agreement, you are essentially guaranteeing that you will close escrow.
If you have no unmet contingencies in your transaction, and you fail to close, you could forfeit your earnest money.
No Proof of Funds To Close
Sellers and lenders want to know that you have the money to close escrow.
All cash offers, while sometimes overrated, also require proof that you actually have the money you’ve promised to deliver at closing.
Failing to provide proof of funds to close can cause your transaction to fail and you could forfeit your earnest money.
The devil is in the details of your purchase and sale agreement.
Numerous legalities can be debated about the disposition of earnest money in the event of a buyer default, rendering all of my comments above subjective.
Earnest money is usually held by one of the brokers, or the escrow company handling the transaction.
Due to potential legal liability, the holder of the earnest money will require that both buyer and seller agree, in writing, how the funds will be distributed in the event of a default.
It’s often best for both buyer and seller to resolve the disposition of the earnest money vs. spending substantial money to pursue legal remedies with no assurance of prevailing in court.
Pay close attention to the terms and conditions of your purchase and sale agreement.
Above all, avoid violating the terms and conditions stated in your purchase and sale agreement.