Looking for and buying a home doesn’t always go smoothly. Problems can arise at any stage of the home buying process which can derail the plans you had to buy a home.
Whether something went wrong in the process or you changed your mind, you may be wondering how you can pull out from the deal you started. For one, you might be wondering how to get earnest money back after you have decided not to go through with the purchase of a house.
In this article, we’ll go over what happens to your earnest money, in what situations you can get your earnest money back, and how to go about asking for this large sum of money!
What is Earnest Money?
Earnest money or good faith money is a deposit a buyer makes into an escrow account to show they are serious about buying the property. Without earnest money, which is about 1-3% of the property purchase price, any buyer could say they are interested in buying a home but may not actually be committed to it.
Earnest money saves the seller’s time and shows the buyer they are committed to the purchase.
Is Earnest Money Refundable?
Yes! Earnest money is refundable, it just depends on the circumstances. If you tell the seller that you are backing out of the home buying process before certain deadlines, then there should be no issue refunding the earnest money to you. The same applies if you didn’t break any contract rules.
If you back out after certain deadlines or break the contract, then you may not be able to get your earnest money back.
Situations Where You Can Get Earnest Money Back
In the contract, there will be contingencies that allow you to get out of the agreement. Contingencies like these lead to certain cases where buyers can get their earnest money back. These contingencies have deadlines though, so if you decide to back out, then you must contact the seller before the deadline.
- Home Inspection Contingency – If the home goes through an in and there are issues, you can negotiate with the seller to have the problems repaired or back out of the purchase.
- Appraisal Contingency – If the home appraises at a lower value than the agreed purchase price of the home and the seller won’t lower their price, then the buyer can back out and get their earnest money back.
- Home Sale Contingency – If there is an issue with you, the buyer, not being able to sell your current home, you are allowed to back out and get your earnest money back. This contingency is put in place so you are not forced to pay two mortgages.
- Funding Contingency – If you are denied a loan from the bank to buy the house, you can still back out with no penalty.
How to Get Earnest Money Back
Now we’ll go over the process of how to get earnest money back, assuming you are doing it before the deadline.
Contact Seller in Writing
Your starting to doubt that this home is right for you. Maybe the inspector found some problems that have put you off from committing to the purchase. Now you must contact the seller with your decision to back out. Make sure to do it before the inspection contingency deadline ends, if that is the stage when you are backing out.
It’s crucial you communicate with the seller in writing why you do not want to continue. Your real estate agent can help you with writing the letter.
Sign Release Forms
Assuming the seller does not contest to you getting your earnest money back, then you should both sign release forms. This says that you both agree that the earnest money will be returned to you. Make sure to contact your realtor or lawyer to find out about any other forms you need to sign.
Contact the Escrow Company
After signing the release forms, it’s important that the escrow or title company is also on the same page. Alert them of your decision to back out of the deal and send them the signed documents. They will then process them and if all is in order, you should receive your earnest money in a few days.
A No-Hassle Escrow Company
If you need help with the home buying process and want to make sure you work with an escrow provider that is fair with your earnest money, contact New Venture Escrow today! We’ll make sure the escrow process is as simple and smooth as can be the next time you decide to purchase a home! You can learn EVERYTHING about escrow CLICKING HERE!