Can a Seller Keep Your Earnest Money Deposit?

When you make an offer on a house, it's customary to put down earnest money as a sign of good faith. This is usually between 1 and 3 percent of the home's purchase price, and the idea is that you will forfeit this money if you back out of the deal. This guide explains when sellers can - and can't - keep your earnest money deposit.

Can a Seller Keep Your Earnest Money Deposit?

Before you can determine whether a seller is entitled to keep your earnest money deposit, you have to know about contingencies. Contingencies are conditions you or the seller must meet for the transaction to go through. Your real estate agent will build these into your offer as a means of protecting you and ensuring that the seller holds up their end of the bargain. (You're also responsible for doing certain things, too.)

The most common contingencies involve appraisals, home inspections and financing, though there are a number of others your agent may use.

Related: How to buy a home after bankruptcy

Appraisal Contingency

An appraisal contingency protects you in case the home you're buying is worth less than the purchase price. If this happens, you have a few options. You can ask the seller to lower the price to match the appraised value, walk away from the deal with your earnest money deposit intact or try to negotiate with the seller on a different solution.

Home Inspection Contingency

A home inspection contingency protects you in case the home you're buying has major problems that were not disclosed by the seller. If the inspection turns up serious issues, you can ask the seller to make repairs, negotiate a lower purchase price or walk away from the deal with your earnest money deposit intact.

Financing Contingency

A financing contingency protects you in case you're unable to get a loan to buy the home. If your financing falls through, you can walk away from the deal with your earnest money deposit intact.

Related: Common questions about getting a mortgage to buy a home

So When Can a Seller Keep Your Earnest Money?

Now that you know about contingencies, we can answer the question: can a seller keep your earnest money deposit? The answer is yes, but only under certain circumstances.

If you back out of the deal without meeting the contingencies in your contract, the seller can keep your earnest money deposit. For example, if you don't make a good-faith effort to get financing, the seller can most likely keep your deposit. Likewise, if you get "cold feet," the seller may be entitled to keep your deposit.

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