Here’s What You Need To Know About Earnest Money
You’ve finally the perfect Knoxville home for sale and your offer has been accepted. Now it’s time to put a little skin in the game, that is, put down some earnest money, to show you’re serious.
Once an offer is accepted, earnest money is put down in good faith. It gives a buyer a reason to hold up their end of the bargain.
So, what can happen to earnest money in a real estate transaction? In this post, we’ll cover what you need to know about earnest money.
Earnest Money: When Everything Goes Right
In a majority of cases, when everything in a transaction goes smoothly, a buyer will be credited
Instead of being given a check back at closing,
Still, there are times where things do not go as planned in a
When Will You Get Your Earnest Money Back?
In a typical real estate contract, there are certain contingencies exist to help protect a buyer so they get their earnest money back. In this section, we’ll cover a few of those common contingencies that are often included in a real estate contract.
Financing Contingency
Even when you get pre-approved with no problem, problems can arise along the way that could prevent from getting final loan approval. If something changes with your finances, it can be scary to think you may have to forfeit your earnest money. The good news, though, is you probably won’t.
Most contracts include a finance contingency clause. If you get laid off from your job or if something changes with your credit, a finance contingency clause protects you when you no longer can be approved for a loan.
Appraisal Contingency
When a home doesn’t appraise, if you’re unable to come up with a solution with the seller, you are able to get your earnest money back. That is if you contract includes an appraisal contingency.
A lender will want to make sure an appraisal is performed on a property. They do this to ensure that they’re not lending out any more money than they have to. When a home doesn’t appraise, you’ll need to work out a solution with the seller. If you cannot, you can walk away with your earnest money.
Home Inspection Contingency
Until a home inspection is completed, there is no telling what kind of issues a home can have including rampant mold issues, a leaky roof or a faulty foundation. And, there are certain times where a home has more issues than what you may want to take on.
Most contracts include an inspection contingency clause that protects you if there are inspection issues. If you’re unable to negotiate repairs with a seller or if the home inspection is altogether too scary, you’ll be able to walk away with the transaction and still keep your earnest money.
The Sale Of Your Home Falls Through
Finally, you’ll also be able to get your earnest money back if the sale of your home falls through. Oftentimes, buyers need to sell a home before they’re able to buy, so there’s often a contingency that protects you if a sale of your home falls through.
Real estate transactions can be unpredictable. There is no telling what the appraisal or home inspection may find. Luckily, that’s why a home sale clause exists. You’ll get your earnest money back if the sale of your home falls through.
When Can You Lose Your Earnest Money?
There are still certain cases where you won’t get your earnest money back. Earnest money keeps buyers from walking away for any foolish reason. Here are a few cases where a buyer stands to lose their earnest money.
You Change Your Mind
When you decide to make an offer, it’s imperative that your mind is made up. There is no room for being wishy-washy, otherwise you open yourself to losing your earnest money.
Unfortunately, there is no clause in a contract that protects a buyer when they change their mind about buying a house. If there are no issues with the inspection or with financing, you will lose your earnest money when you change your mind for absolutely no reason.
In this situation, the earnest money is there to protect a seller from wishy-washy buyers. Earnest money is what either party in a transaction stands to lose if they don’t hold up their end of the bargain.
You Fail To Uphold Your End Of The Contract
Once an offer is accepted, there are certain things that a buyer must do in order to hold up his or her end of the bargain.
There are certain timelines that exist in a contract to ensure the transaction moves forward. For example, a buyer must complete their loan application within 3 days of offer acceptance. Or, a buyer must also complete their home inspection within certain amount of time, depending on what the contract states.
As a buyer, if you fail to uphold your end of the bargain on items included in the contract, you may be at risk of losing your earnest money.
You Waive The Contingencies Meant To Protect You
Sometimes, buyers will waive certain contingencies in a contract that are meant to protect them, in order to make their offer more appealing to a seller. This can sometimes be a dire mistakes.
In Tennessee contracts, there is a financing contingency and inspection contingency that are meant to protect a buyer. If a home has a bad home inspection, a buyer is able to walk away and receive their earnest money back. Or, if a buyer is unable to secure financing, he or she is able to walk away and get their earnest money back.
As a buyer, if you opt to waive these contingencies, you put yourself at risk of losing your earnest money. Before you consider waiving these contingencies, it’s important that you fully understand the protection you’re giving up.
Bottom Line: There’s A Lot To Know About Earnest Money.
Earnest money is there to protect both parties in a transaction, should either one decide to not hold up their end of the deal. Prior to signing off on an offer, it’s imperative you have a clear understanding of the situation where you can possibly lose your earnest money.
Are you thinking about buying your first Knoxville home this year? Please let us know if there is anyway that Knoxville Home Team can assist you. Rick can be reached at 865-696-9002 or via email at [email protected]. Kati can be reached at [email protected].
You can start your home search today on our Knoxville Home Search Page.
