Home Buyers: Do Not Make These Costly Earnest Money Deposit Mistakes

Before making a house purchase there are few people who know exactly what earnest money is and what it is used for during a home sale.  This makes it harder for a buyer to know how to handle their earnest money. In turn, this ultimately leads them to make blunders that can set them back thousands of dollars.  

With that in mind, avoid these eight earnest money blunders buyers make when trying to buy a house.

Not Planning For Earnest Money

The first mistake many buyers make is failing to plan for their earnest money.  Earnest money can be as little as one percent of a purchase price and may go up to ten percent.  Buyers who do not plan for this major cost may feel panicked when asked to produce it.

Earnest money is a deposit that a buyer will make to a title company that shows the seller that they are going to follow through with the sale.  It makes a buyer invest in the property with the knowledge they could lose the money if they void the contract.

Making the Wrong Offer

Buyers need to think like the homeowner.  Even though few buyers want to fork over thousands of dollars for earnest money, it does put the seller’s mind at ease that they are getting serious offers.  With that in mind, a buyer has to be sure that they want the home they are making an offer on, especially if they are putting down a sizable amount in earnest money.  

While some earnest money deposits feel like they are a good chunk of money upfront it does help to soften the blow of a down payment down the road.  The earnest money will be put towards the down payment when the sale goes through. This makes it much more reasonable if the buyer has already offered five to ten percent of the purchase price.  

No Contingencies

Sometimes buyers feel like everything is falling into place and they decide they do not need contingencies to fall back on.  Waiving contingencies can help a sale go through fast, but it can also help a buyer lose their earnest-money deposit.

If something does happen and a contingency is not in place, the buyer may have to walk away without a house and without their money.

Forgetting Due Dates

There are some contracts that will put certain dates in place that state when a buyer or seller can terminate a contract without losing out on earnest money.  Buyers who fail to realize these dates have passed are likely to void the contract without the knowledge that they are forfeiting their deposit.

Pay close attention to any dates that are in the contract to avoid this expensive mistake.  

No Going Back

A property that is being sold “as is” usually has the stipulation that the earnest money cannot be transferred back to the buyer if they decide to walk away.  A buyer has to be sure that they are going to make the purchase before getting too far into the process. Otherwise, they are going to end up walking away without their deposit or they will buy a house with major problems.  

Agreeing to Void the Contract

If something goes wrong with the sale, the buyer and seller will sign a document that allows the contract to be voided.  A buyer should avoid signing this contract until they know they are going to get back the deposit that they are owed. This is a tactic to use if a seller is refusing to return money that is, by contract, owed to the buyer.

In the event the buyer does not sign this document the homeowner is unable to sell their house.  With an existing contract on the table, they cannot go forward with another sale until the document is signed.  This can push a stubborn seller into releasing the funds.

Quick Offers

A buyer may walk through a home and be taken aback by the beauty of the new appliances and a fresh coat of paint.  This makes them want to instantly put in an offer that included an earnest money deposit. This can be beneficial if they end up loving the home.  

However, many buyers start to think of all of the things that were wrong with the house after they have submitted their offer.  Avoid making hasty decisions and walk through the home multiple times before making an offer.

Fighting a Seller

A buyer who knowingly voids a contract and is not owed their earnest money back should not argue with the seller.  Some buyers are angry that the sale did not work out and want to force the seller into returning their money. Even though it is frustrating to lose out on the deposit be sure to follow the contract to the letter or be ready to give up the money that was offered.