When is the earnest deposit non-refundable?
When committing to purchase a home or accept an offer, it’s important to know when the deposit goes non-refundable, or hard in real estate slang.
First, let me clarify the deposit, an earnest deposit is consideration for the offer made to purchase. It is a deposit the buyer makes, which is most often held at the title company from contract to closing date. This deposit is credited towards the purchase price and is a show of good faith to perform per the contract guidelines. This deposit is typically 1% of the purchase price, but entirely negotiable up or down.
So is this deposit refundable to buyer at any point? Is it awarded to seller at any point? Let’s look into the fine print here.
There is not simply a date when this deposit goes hard, as it is guided by several contract principles. Here’s a list of those timelines/principles, though not entirely conclusive:
-Inspection period: In this timeframe, buyer is to investigate the property to the fullest extent and may cancel the contract for just about any reason. Once proper notice is delivered to seller, buyer is entitled to deposit refund. This is the most common timeframe for cancellations. This timeline is standard 10 days, but is negotiable. Addiontally, buyer has the right to make requests of seller in this timeframe. Seller then has 5 days to respond, buyer then has 5 more days to agree to sellers response. So at the longest, this could be a 20 day process.
-Appraisal: Assuming this contingency is not waived, the buyer is protected from a low appraisal. Meaning if the appraisal comes in below the purchase price, buyer may renegotiate price with seller, elect to come in with cash over appraised value or cancel with deposit refunded. If the appraisal comes in over purchase price, the seller does not have the same luxury.
-Loan Contingency: If the buyer is getting a loan to purchase, then their offer is contingent upon receiving full loan approval prior to closing. If it is not approved at any point, the buyer has the right to cancel contract and receive deposit back. However, buyer must prove their good faith efforts to obtain loan approval and must deliver notice 3 days prior to closing.
-Septic Tank: If the home is on septic, the inspection typically takes place within a week of the closing date. If there are major issues with the system (above 1% of purchase price), then the buyer is able to cancel with return of their earnest. This can take place within 5 days of receipt of the septic inspection.
-Contract breach: If at any point during the contract period, the seller breaches on their commitments by contract (like allowing access to home, clearing out personal property, etc) then you are again protected from losing your deposit. However, in any case of breach, the breaching party must always be given 3 days to cure the breach. After 3 days is passed if there is no correction, cancellation is permitted.
Woh, that seems like a lot right?!
The moral of the story for both buyers and sellers being, it isn’t a sealed deal until its closed and funded. Both parties should be mentally, financially and emotionally prepared for what can transpire throughout the process.
Because so many things can and do go sideways in a real estate transaction, having a seasoned realtor representing you is paramount. Your realtor will ensure you are prepared and protected each step of the way to get the deal done.