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How do you protect your earnest money when buying a home?

On Behalf of | Sep 27, 2021 | Real Estate

Buying a home is a complicated process. Even when you know immediately that a home is the right property for your family, it will still likely be a few weeks at the very least before you will close on the property and take possession.

Many real estate transactions take a month or longer to complete, which means that delays and false starts could be a real hardship for sellers. Earnest money is an important protection for sellers. When buyers offer earnest money, it makes it easier for the sellers to accept an offer because they won’t just wind up back at square one if the buyer backs out of the transaction.

When a buyer doesn’t follow through on a purchase offer, the seller generally gets to keep the earnest money. How can you protect your earnest money when making an offer on a property?

Include contingencies in your offer

There is a common and well-known way to protect your earnest money if your purchase falls through. When you make the offer, you can include certain contingencies that limit the scope of your offer.

For example, many buyers will include an appraisal contingency that protects them from the loss of their earnest money if the appraiser determines that the home isn’t worth the amount offered. Inspection contingencies are also common and allow a buyer to back out of a purchase without losing their earnest money if there are significant defects discovered during the inspection that were not included in the seller’s disclosure.

Including contingencies will give you the opportunity to cancel a transaction without losing your earnest money, which might represent between 1% and 2% of the sale price of your property. In the most competitive neighborhood, buyers might even put down as much as 10% in earnest money to make their offer seem more appealing to the seller, which makes protecting that money even more important.

Customized real estate documents are crucial for your protection

While there are boilerplate real estate documents available online for people to download and fill out,  those documents won’t offer you optimal protection in what may be the biggest transaction of your life. You need documents that talk about your specific needs and concerns to maximize your protection as a potential buyer.

Creating highly customized and detailed document that reflects your needs and top priorities will maximize the protection you have when buying residential real estate.


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