When you make an offer at home, you usually include serious money – a deposit that indicates the seller you are a serious buyer. This good faith payment applies to down payment or closing costs if payments of 1% to 3% of the regular purchase price are held in escrow and the sale has passed. This means that if the sale is completed, the money will not be refunded. But if your transaction collapses, will your serious money be refunded?
Short answer: Yes, serious money is often refunded, but only if certain conditions of the contract are met.
Whether you retrieve it depends on the terms of your purchase agreement, the contingencies involved, and why the transaction did not close. This Redfin article will overtake you when your earnest money is refunded, and answer important questions you may have about serious money.
When will serious money be refunded?
If the buyer retreats from the contract for reasons that the buyer is protected by the purchase agreement, the full-scale money will generally be refunded. These protections are usually done in a contingent form. This is a clause that allows you to leave the sale without penalty if certain conditions are not met.
This is when buyers can usually expect to refund their serious money:
Home inspection reveals major issues
If the offer includes a home inspection and the inspection reveals serious issues such as damage to the foundation, molds, or outdated electrical systems, the buyer can retrieve it from the transaction during the inspection period and refund the serious money.
Buyers cannot secure funds
Funding or mortgage emergency protects buyers if they can’t get mortgage approval. Even with pre-approval, unexpected financial changes or lender decisions can prevent final approval. If this occurs and includes the appropriate contingency, the buyer can usually leave with a serious money deposit.
The house is rated as less than the purchase price
If the unforeseen valuation result in a house being valued because the house is less than what was offered and the seller does not adjust the price, the buyer can terminate the contract. Without this unforeseen circumstances, buyers are at risk of being on the hook for a difference or losing serious money once they leave.
Title problem has been discovered
If the title search reveals ownership disputes, liens, or unresolved legal claims and is unable to clear the title, the buyer may cancel the contract based on the title contingency and refund serious money.
Sellers retreat from the transaction
If the seller retreated from the contract without a valid reason – for example, if they do not sell or fail to meet the agreed term – the buyer is usually entitled to a full refund of their serious money.
When can you not refund serious money?
In most cases, serious money will not be refunded if the buyer violates the terms of the contract or backs out for reasons not covered by the contract.
The most common scenarios are:
Buyer abandoned the unexpected
In a competitive market, buyers can choose to abandon protections such as inspections and financing contingencies to enhance their offers. However, doing so limits your ability to cancel a contract without penalty. If problems arise later, the buyer may not be able to recover serious money.
Buyers miss deadline
Contingency applies only within the specified time frame. If the buyer fails to complete the inspection, secure funds, or take other necessary steps within the agreed period, they could forfeit the serious money, even if the reason for the backout is valid.
Buyers change their minds
If the buyer gets cold feet, finds another property, or decides not to pass the purchase without a valid contractual reason, the seller is usually entitled to maintain a serious money deposit as compensation for lost time and potential offers.
How buyers can protect their money seriously
The good news is that buyers can take some steps to protect their serious money and reduce the risk of losing it. By maintaining organisation and following the terms of the purchase agreement, deposits will remain secure throughout the transaction.
The important steps are:
Fills all contract deadlines for inspections, financing and other contingencies, including clear contingencies in the contract. All documents will be written, including contract changes, deadline extensions, and more.
FAQS: Serious Money and Refunds
Do I always have to put serious money when making an offer?
No, serious money is not legally necessary, but it is a standard practice in most markets. Without it, the offer may not seem very serious, and the seller may choose a buyer, including the deposit.
When is the serious money deadline?
Serious money is usually within 1-3 business days immediately after the seller accepts the offer. The exact timing is specified in the purchase agreement.
Where does serious money go?
Earnest Money will be held in an escrow account that is managed by neutral third parties, such as the Title Company or Escrow Company, until the sale is completed or terminated. If a sale is closed, the deposit will apply to the buyer’s down payment or closing costs at the time of closing.
What happens if I missed the contract deadline by mistake?
Without deadlines (such as testing or financing), you could result in a breach of contract and risk serious money. Sellers may be entitled to maintain the deposit if the buyer fails to meet the agreed term.
When can a seller maintain serious money?
Sellers can maintain serious money if they cancel a contract for reasons not covered by contingency, meet deadlines, or cancel the contract by default on the contract.
How can I get my serious money back?
To receive a refund, the buyer must cancel the contract in accordance with the terms of valid contingency and cancel the contract within the specified time frame. The escrow holder will release the funds once the parties sign a release agreement or the cancellation terms are legally resolved.
