When you make an offer on a home in Lakewood or Long Beach, you’re most likely going to have to show the seller an earnest money deposit - it’s a sign of good faith that you’re actually going to buy the home.
However, if you back out of the deal, you could lose the deposit. (Sometimes you can keep it - but in many cases, you’ll forfeit it to the seller.)
Here’s what you need to know.
3 Sure-Fire Ways to Lose Your Earnest Money Deposit
The purpose of an earnest money deposit is to show the seller you’re a serious buyer. If nobody made earnest money deposits, there wouldn’t be any homes on the market - people would run around saying they were going to buy everything they were interested in, forcing the sellers to take the homes off the market, and then re-list them when the buyer eventually made a decision.
You can lose your earnest money deposit to the seller if you don’t buy the house - especially if:
You waived your contingencies
You missed the timeline
You get “cold feet”
Here’s an in-depth look at each of these instances.
#1. Waiving Contingencies
The vast majority of real estate purchase contracts include contingencies - conditions that have to be met (by either party) in order for the sale to go through.
A common contingency has to do with financing. It typically says that if you’re unable to get funding for the purchase, you can walk away from the deal with your earnest money deposit intact. But if you waive that contingency and your financing falls through, that cash goes to the seller.
Another has to do with home inspections - it says that if there’s something wrong with the house that you can’t deal with, you can walk away. However, if you don’t have that contingency in your contract and decide to walk away after the inspection, that cash now belongs to the seller.
#2. Missing Timelines
Most contracts have a specific time frame during which you’re getting financing, having inspections performed and being ready to close on the house. However, if you’re dragging your feet and the seller doesn’t want to wait it out, you may lose your deposit for missing a deadline.
#3. Getting Cold Feet
There’s no contingency for getting cold feet. If you don’t meet the conditions that let you out of the deal but you change your mind anyway, you forfeit your earnest money deposit for the seller. Remember, the seller took the home off the market for you - and in the process, missed out on other buyers who would’ve followed through with the transaction.
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