12 Ways To Refund Your Earnest Money Deposit

The earnest money deposit is an important part of the home buying process. It tells the seller you are a committed buyer. The personal check or cashiers check will be cashed by the title company when escrow is opened. A wire transfer may also be coordinated with the title company to open escrow.
The funds will then be held in an escrow account. You may instruct the title company to utilize the monies towards your termite inspection or other home inspections, home warranty, as part of your down payment and/or closing costs. Any monies that are not spent will be refunded once the sales transaction closes.

When can you expect to get your earnest money deposit back?

Sellers rarely accept offers without deposits due to essentially taking their home off market. In most circumstances, you can expect to get your deposit back if you discover something that was not acceptable about the home and/or disclosures, such as:

  1. Any changes by seller that may arise during escrow.
  2. Discoveries of the home and/or area during inspection period.
  3. Seller unwilling to make repairs to the property.
  4. Seller's property disclosure statement.
  5. Seller's 5 years insurance claims history.
  6. The title commitment and title insurance. 
  7. The Homeowners Association (HOA) governing documents.
  8. Conditions, Covenants, and Restrictions (CC&R's).
  9. The appraisal value did not meet purchase price.
  10. The sale is contingent upon buyer obtaining loan approval for the loan.
  11. The sale is contingent upon a sale of the buyer's other home. 
  12. Any other contingency that was negotiated between buyer with seller.

When can you expect to forfiet your earnest money deposit?

A home buyer can lose their earnest money if the buyer breaches the contract. However, I have never had a buyer client lose their earnest money. But, I’ve had a seller client keep a buyer’s earnest money. This is why its important to work with an experienced real estate agent that will protect you from having to forfeit your earnest deposit. Here are some occurrences of a potential breach of contract: 
  • Buyer cancels contract due to discoveries of the home and/or area after inspection period has expired.
  • Buyer does not cure a potential breach within three days of the seller delivering the Cure Notice to buyer.
  • Buyer's failure to pay the required closing funds by close of escrow (COE). 

How Much Should You Put Down in the Earnest Money Deposit?

In general, the larger the amount of earnest money, the more serious the seller will consider your offer. Therefore, the more you offer for earnest money the more attractive your offer will be to the seller. Keep in mind that by putting down a small amount of earnest money will often raise red flags in the mind of the seller.
The amount you’ll pay for the earnest money deposit will depend on different factors, such as the current real estate market, a seller's having multiple offers for their property, and what the seller requires. On average, you can expect to offer the following earnest money deposit amounts:
  • $1,000 as earnest money for a resale property.
  • 1 percent of the purchase price for luxury homes.
  • 2% through 3% for newly construction homes.
  • $5,000 for a property you are buying through an auction.
  • 10 percent of the purchase price when offering a cash deal for a bank-owned property.