Buyers often provide earnest money or a good faith deposit when purchasing a home to show serious intent. This deposit can be a significant sum, and losing it can be a financial setback. Understanding the common ways buyers may forfeit this money can help you protect your investment.
Failing to meet deadlines
Real estate transactions in California often involve strict deadlines for things like inspections, appraisals, and securing financing. Missing these deadlines without obtaining extensions can result in losing your earnest money. Ensure you stay on the timeline and communicate regularly with your real estate agent.
Backing out without a valid reason
Once you enter into a contract, you commit to the purchase under specific conditions. If you decide to back out without a contingency that covers your reason, the seller has the right to keep your earnest money. Valid contingencies might include issues found during the inspection or inability to secure financing, but simply changing your mind won’t protect your deposit.
Ignoring contract terms
Carefully read and understand the terms of your purchase agreement. The contract may include specific conditions that, if unmet, could result in losing your earnest money. For example, failing to apply for a mortgage by the specified date or not providing the required documents could void contingencies and put your deposit at risk.
Appraisal issues
In California’s competitive real estate market, buyers sometimes offer more than the home’s appraised value. If you waive the appraisal contingency and the home appraises for less than the purchase price, you may need to cover the difference out of pocket. If you cannot do so and you walk away, you could forfeit your earnest money.
Staying informed and diligent throughout the home-buying process can safeguard your earnest money. Make sure you understand every step to protect your investment.