Earnest money in a purchase and sale agreement?

I am in the process of buying a house and have been presented with a purchase and sale agreement. I am confused about the earnest money portion of the agreement and would like to understand what it means and how it will affect the transaction. I am particularly interested in knowing what happens to the earnest money if either party decides to back out of the agreement.

Merry K.

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July 26, 2023

Good morning. I am a WA State attorney, and I have reviewed numerous purchase and sale agreements (PSA), and have bought and sold numerous pieces of property in WA and CO. You are wise to ask this question. Since you are the buyer, normally your buyer's real estate agent would prepare the PSA for you to use, after discussing with you. Since you said a PSA "was presented to you" I"m wondering whether you are buying a new home from a building contractor. In any event, the purpose to an earnest money payment is to hold the home for you and let the seller know you are interested. In most cases, however, the seller can keep your whole earnest money payment if you back out of a purchase for reasons that are not protected in the PSA. For example, if you write your offer contingent on your subjective approval of an inspection report, or write your offer contingent on obtaining financing at terms you approve of, either one of these terms can get you out of the contract and also have your earnest money returned to you. There should be language in the PSA that clearly states what happens to the earnest money and how much earnest money you are providing. I hope that that is helpful. If you continue to have questions, I urge you to have an attorney review any and all documents, including those for loans, prior to signing anything.