Earnest Money Deposits: Rules & Risks
What the deposit does, where it's held, and who keeps it if the deal falls apart.
What is an earnest money deposit?
Earnest money — sometimes called hand money — is a deposit a buyer puts up when signing the agreement of sale to show it is serious about the purchase. It is typically held in escrow by a broker or title company and applied to the purchase price at closing.
Who keeps the deposit if the deal collapses?
That depends on why the deal failed and what the contract says. If a buyer walks away for a reason the contingencies allow — financing, inspection, title — the buyer usually gets the deposit back. If the buyer simply defaults, the seller may be entitled to keep it, sometimes as the seller's exclusive remedy. The agreement of sale controls.
When the deposit is disputed
When both sides claim the deposit, the escrow holder often will not release it without both parties' agreement or a court order, which is how deposit fights end up in litigation. Clear contract language on default and the deposit is the best way to avoid that.
How Nochumson P.C. helps
Nochumson P.C. structures deposit terms in the agreement of sale and resolves deposit disputes for buyers and sellers. Contact us if a deposit is at stake.
Related articles:
- Agreement of Sale in PA Real Estate: Buyer's & Seller's Guide
- Contingencies in a Real Estate Contract
- How Escrow Works in a Real Estate Deal
- Purchase & Sale Agreements: Commercial Deal Terms
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