That depends. If you decide to walk away from the deal simply because you changed your mind or for other personal reasons, you can kiss your earnest money goodbye. The sellers keep it because they must now spend time and money to put the house back on the market.
This is why the more earnest money you put down, the more attractive your offer is to the seller. Sellers know it’s much harder to walk away from $10,000 than $1,000, so they’ll take note of that when considering offers.
However, there are 4 types of contingencies that are considered valid, legal reasons for backing out of a deal (assuming they’re included in your purchase agreement). If any of these contingencies occurs, you’re able to get your earnest money back:
- Home inspection contingency – If the house fails the inspection due to defects and seller doesn’t agree to remediation (i.e., fix the problem)
- Appraisal contingency – If the house appraises for less money than the sale price and the seller won’t lower the price of the house
- Financing contingency – If the buyer can’t secure financing for a mortgage loan on the house
- Selling house contingency – If the buyer is unable to first sell their current house
When these contingencies are included in the purchase agreement, you can get your earnest money back if the contingencies are not satisfied.
In a seller’s market that leads to bidding wars, some buyers choose to forgo some or all of these contingencies to present a more attractive offer that may have a better chance of getting accepted. This can be a risky endeavor because if any of those situations occurs and the sale doesn’t go through, you’ll lose your earnest money with no house to show for it. If you’re considering omitting these contingencies in your offer to purchase, consider the risks very carefully before doing so.