There is More than One Way to Lose Your Earnest Money
When you are in the process of shopping for a Granbury home and eventually find one you will make an offer and be expected to pay earnest money shortly after both parties have signed and agreed upon the purchase contract. It is important to know as much information as possible about earnest money when it comes to purchasing a home. Some buyers have found themselves leaving their earnest money behind without fully understanding why.
The First Thing to Know is: What Earnest Money Is
When you make a purchase offer on a home and it is accepted by the home seller you will often be required to put money into escrow to give proof that you are serious about your purchase offer. This is basically another way of saying you are putting a deposit down on your home purchase. The money will be held in an escrow account until it comes time to sign the final paperwork and transfer money over to the seller as you take ownership.
An earnest money deposit is written into your purchase contract with an agreed-upon amount. Sometimes earnest money can also be referred to as a good faith deposit helping to assure the seller that the home buyer is not making the offer lightly and they plan to follow through on the purchase of the home. The buyer is putting money into the purchase they could end up losing if they didn't meet the terms of the purchase contract that both parties sign.
An earnest money deposit is not required for the legal sale of a home but most often a seller will require earnest money to be put down as they are taking a risk when they accept an offer by removing their home from the market until the offer officially goes through. Putting earnest money down means that the buyer is willing to take the risk of losing a significant sum of money because they do not feel they will be losing it with their plans to purchase the home.
As much as the home purchase goes through the earnest money will then become part of the purchase price of the home going toward any down payment and closing costs that the buyer has agreed to pay. But there are some ways that a buyer could lose their earnest money, read on to find out.
Several ways that home buyers could end up losing earnest money
Homes are still going into bidding wars although not as often as they were during the last few years. Over the course of the pandemic, it was almost 100% guaranteed that buyers would face a bidding war when putting an offer in on a home. Though it is not as common as it was, it is still happening and if you find yourself in one you need to make sure you are working closely with a professional and being mindful of your strategy.
When the competition feels high, buyers can feel the pressure to make a home offer deal sweeter and may also offer a larger amount of earnest money to communicate to the home seller they are more serious about their offer than other buyers. In some cases, buyers make a high offer on the home without being able to follow through and they end up losing their large earnest money deposit.
A non-refundable deposit
In some areas where real estate is still highly competitive, some buyers have been using the option of putting down an earnest money deposit and making an adjustment to the purchase contract where they state the deposit is nonrefundable to show how serious they are about going through with their purchase offer. In some cases, this can pay off but it is a strategic step that should not be made lightly. This strategy should only be made with the careful advice of a real estate professional.
Backing out of the purchase
This is the most common reason for losing earnest money and the reason for which an earnest money deposit is often placed. If for any reason other than what is written in the contingencies of your purchase agreement you decide you no longer want to purchase the home this then forfeits the earnest money to the home seller as a concession for them taking the home off the market while awaiting the transfer of money for the official purchase of the home.
Sometimes this is due to an unforeseen change in life circumstances on the buyer's part. Like a broken engagement, an unexpected divorce, a medical emergency, a sudden job loss or demotion, etc. Even though these circumstances were out of your control and you could make a plea request to the home seller for the return of the deposit they do not legally have to return the money.
Purchasing property as it is and not fully understanding the terms
Many homes are appreciating in value and mortgage prices are higher than they have been in several years. Some buyers have looked to purchase fixer-upper homes at a lower price tag. However, buying as-is means just that. That no matter what is wrong with the home there will be nothing done to fix or adjust the price on the purchase offer. Sometimes eager homeowners looking through a home that is being sold as-is do not see much wrong with the home and make an offer only to find out during the inspection process there are larger more expensive problems than they realized. Although the inspection does not give you the chance to negotiate terms on the purchase it gives you more insight about backing out on your offer because the inspection without the property contingency wording can mean a loss of your earnest money.
When there is a lot of interest in a particular property some buyers may choose this strategy of waving what is considered a standard contingency in a purchase offer to grab a seller's attention on accepting their offer. Many times this means waving the appraisal or the inspection process. The one detail that buyers forget about is that these contingencies are put in place to help protect a buyer from losing their earnest money. It gives them the OK to back out on their offer if an issue is found during these processes.
No buyer wants to put their hard-earned money down on a home purchase only to have it leave their bank account and have no home to speak for it. If you are unsure of how your earnest money is being handled or have any questions that you would like clarified about the earnest money process it is always best to ask them as soon as they come up. It is always best to ask your real estate agent as they are focused on your best interest.
For more information on purchasing a home in Granbury Texas and surrounding areas please contact us anytime.