Earnest Money Contract

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 2,665 reviews

Jump to Section

Need help with an Earnest Money Contract?

CREATE A FREE PROJECT POSTING
Post Project Now

What is an Earnest Money Contract?

An earnest money contract is a legally binding document between parties made during the exchange of the earnest money. Earnest money is a monetary deposit made in good faith on a home loan or real property to the seller from the buyer during a home sale. Generally, the earnest money can be anywhere between 1-10% of the sale price. The earnest money contract sets the conditions for refunding the deposited amount.

Here is an article on earnest payments .

How Earnest Money Contracts Work

Earnest money protects the seller if the buyer backs out of a sale. An earnest money contract protects both parties by setting terms and conditions of the earnest money refund. It also provides remedies for both parties in case of a breach of contract or dispute.

Generally earnest money contracts contain crucial information pertaining to the sale and the exchange of the earnest money–such as contingencies, timeline of exchange, refund process, escrow agent, etc.

Here are some examples of how earnest money works .

Meet some lawyers on our platform

Christopher M.

7 projects on CC
View Profile

Daehoon P.

72 projects on CC
View Profile

Tina R.

14 projects on CC
View Profile

Benjamin W.

40 projects on CC
View Profile

Key Terms in an Earnest Money Contract

Earnest money contracts set the terms and conditions of refunding the deposited earnest money and provides remedies in case of breach of the contract. Here are some of the key terms you are likely to encounter in an earnest money contract:

  • Buyer and seller details: An earnest money contract will contain the information about the buyer and the seller to establish the parties that are entering the agreement.
  • Escrow agent information: The earnest money is generally held by an escrow agent agreed to by the parties involved in an escrow account . The escrow agent can be the seller’s attorney, the real estate agent or an agent of the title company or a third party. In case of a breach, the escrow agent may return the amount to the seller and in case of a dispute the escrow agent might hold the earnest money till the dispute has been resolved.
  • Amount of deposit: There is no rule about how much earnest money has to be. Generally, this ranges from 1-10% of the sale price. The earnest deposit contract will note the amount of the deposit being held.
  • Property details: The earnest money contract will also contain information about the property being sold. It will also note the purchase price, representations and warranties, financing, mortgage note , title insurance , closing costs , lead-based paint disclosure and other relevant details of the sale.

Contingencies :

Contingencies are an important part of earnest money contracts. These contingencies provide buyer protection by ensuring refund of the earnest money in case of certain special events. Here are some common contingencies used in earnest money contracts:

  • Mortgage contingency clause : A mortgage contingency clause can be used when the buyer is purchasing real estate through a mortgage. This clause would ensure that if the buyer is unable to secure mortgage and complete the sale, the earnest money deposit will still be returned to the buyer.
  • Inspection clause : An inspection clause allows the buyer to have certain amount of time to conduct home inspection for any issues. If the home fails this inspection and the buyer backs out of the sale, the earnest money can still be returned to the buyer if the inspection clause has been added to the earnest money contract.
  • Appraisal contingency: An appraisal contingency allows earnest money refund in case that the appraisal , or appraised value, of the real estate is lower than the sale price.
  • A contingency for selling an existing home : A contingency for selling an existing home makes the sale contract contingent on the sale of a current home. If the current home doesn’t sell and the sale doesn’t go through, this type of contingency still allows for earned money refund.

If you would like to learn more about contingencies in an earnest money contract, here is an article .

ContractsCounsel Earnest Money Contract Image

Image via Pexels by Mikhail

Can I Get My Earnest Money Back?

Earnest money contracts have contingencies that protect both the seller and the buyer. In case a sale goes through, earnest money is generally refundable. Contingencies set out more terms under which even if the sale doesn’t go through, the earnest money is refundable.

However, if the buyer backs out or the sale is incomplete due to reasons not set under contingencies in the contract, the seller can forfeit the earnest money.

Here are some ways you can protect your earnest money.

What Happens to Earnest Money at Closing?

If the appraisal is completed and both the buyer and the seller is happy with the price and the inspection is completed without trouble, the buyer and seller move to closing. At closing, the buyer pays the seller and receives the rights to the property. At this time, the escrow agent will pay the buyer the earnest money which was being held in escrow. Sometimes, depending on how the earnest money was paid, it will be applied towards closing costs or down payment.

In cases where the buyer secures a loan with no down payment, the earnest money will just be applied to closing costs. The surplus will be paid back to the buyer. In cases where the earnest money deposit is not paid in cash and instead using other assets such as a watch, car, boat, real estate, etc., it might be returned to the buyer or liquidated and then applied to closing costs and down payment.

Here is an article on escrow money at closing .

Get Help With an Earnest Money Contract

Do you have any questions about an earnest money contract and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from real estate lawyers who specialize in contracts.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Earnest Money Contract Lawyers

View Thomas
Member Since:
October 30, 2020

Thomas C.

Partner
Free Consultation
Get Free Proposal
Denver, CO
9 Yrs Experience
Licensed in CO
University of Colorado Law School

Thomas Codevilla is Partner at SK&S Law Group where he focuses on Data Privacy, Security, Commercial Contracts, Corporate Finance, and Intellectual Property. Read more at Skandslegal.com Thomas’s clients range from startups to large enterprises. He specializes in working with businesses to build risk-based data privacy and security systems from the ground up. He has deep experience in GDPR, CCPA, COPPA, FERPA, CALOPPA, and other state privacy laws. He holds the CIPP/US and CIPP/E designations from the International Association of Privacy Professionals. Alongside his privacy practice he brings a decade of public and private transactional experience, including formations, financings, M&A, corporate governance, securities, intellectual property licensing, manufacturing, regulatory compliance, international distribution, China contracts, and software-as-a-service agreements.

View Michael
Member Since:
October 31, 2020

Michael B.

Attorney
Free Consultation
Get Free Proposal
Illinois
12 Yrs Experience
Licensed in IL, MN, WI
University of the Pacific

Michael has extensive experience advising companies from start-ups to established publicly-traded companies . He has represented businesses in a wide array of fields IT consulting, software solutions, web design/ development, financial services, SaaS, data storage, and others. Areas of expertise include contract drafting and negotiation, terms of use, business structuring and funding, company and employee policies, general transactional issues as well as licensing and regulatory compliance. His prior experience before entering private practice includes negotiating sales contracts for a Fortune 500 healthcare company, as well as regulatory compliance contracts for a publicly traded dental manufacturer. Mr. Brennan firmly believes that every business deserves a lawyer that is both responsive and dependable, and he strives to provide that type of service to every client.

View Lyndsey
Member Since:
October 31, 2020

Lyndsey G.

Attorney
Free Consultation
Get Free Proposal
Roseville, MN
8 Yrs Experience
Licensed in MN
Mitchell Hamline College of Law

Attorney of 6 years with experience evaluating and drafting contracts, formation document, and policies and procedures in multiple industries. Expanded to estate planning last year.

View George
Member Since:
November 3, 2020

George O.

Managing Attorney
Free Consultation
Get Free Proposal
Houston, Texas
15 Yrs Experience
Licensed in TX
South Texas College of Law

George is a lifelong Houston resident. He graduated from St. Thomas High School and then Texas A&M University. He obtained his Doctor of Jurisprudence from South Texas College of Law in 2007. He is experienced in real estate, estate planning & probate, civil/commercial matters, personal, injury, business matters, bankruptcy, general counsel on-demand, and litigation. He is active in the community serving as past-president of the St. Thomas Alumni Board, a current member of the Dads Club Aquatic Center Board of Directors, current member of the Dickinson Little Italy Festival of Galveston County Board of Directors, and former PTO President for Briarmeadow Charter School.

View Ramsey
Member Since:
November 4, 2020

Ramsey T.

Founding Partner
Free Consultation
Get Free Proposal
New York
25 Yrs Experience
Licensed in NY
William and Mary

My clients are often small and medium size technology companies, from the "idea" stage to clients who may have raised a round or three of capital and need to clean up a messy cap table. I help with all legal matters related to growth that keep founders up at night - hiring people, allocating equity, dealing with shareholders and investors, client negotiations and early litigation counseling (before you need a litigator). I've seen a lot, and because I run my own business, I understand the concerns that keep you up at night. I’ve been through, both on my own and through other clients, the “teething” pains that will inevitably arise as you scale-up – and I’m here to help you. I have over 20 years international experience devising and implementing robust corporate legal strategies and governance for large multinationals. I now focus on start-ups and early/medium stage technology companies to enable a sound legal foundation for your successful business operations. Many of my clients are international with US based holding companies or presences. My 17 years abroad helps me "translate" between different regimes and even enabling Civil and Common Law lawyers to come together. Regularly, I handle early stage financings including Convertible Notes, Seed and Series A/B financings; commercial and technology contracts; international transactions; tax; mergers and acquisitions.

View Sammy
Member Since:
November 4, 2020

Sammy N.

Attorney
Free Consultation
Get Free Proposal
Raleigh, NC
3 Yrs Experience
Licensed in NC
Campbell University School of Law

Sammy Naji focuses his practice on assisting startups and small businesses in their transactional and litigation needs. Prior to becoming a lawyer, Sammy worked on Middle East diplomacy at the United Nations. He has successfully obtained results for clients in breach of contract, securities fraud, common-law fraud, negligence, and commercial lease litigation matters. Sammy also counsels clients on commercial real estate sales, commercial lease negotiations, investments, business acquisitions, non-profit formation, intellectual property agreements, trademarks, and partnership agreements.

View Brad
Member Since:
November 6, 2020

Brad H.

Principal
Free Consultation
Get Free Proposal
Raleigh, NC
10 Yrs Experience
Licensed in NC
University of North Carolina

Brad is a business attorney with experience helping startup and growing companies in a variety of industries. He has served as general counsel for innovative companies and has developed a broad knowledge base that allows for a complete understanding of business needs.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call