In a strong real estate market, sellers might receive multiple offers on the same property. The amount a buyer offers and the terms of their offer dictate which one the seller chooses. Sellers will typically prioritize those who can show proof of financing, those who offer convenient closing terms and those offering earnest money when making a decision in a multi-offer scenario.
Earnest money is a deposit made against the purchase price of a property — often 1% of the property’s value. It shows the seriousness of the offer and provides some sort of compensation to the seller if the buyer backs out of the purchase.
As someone hoping to buy real estate, you obviously want to keep that earnest money. Can you protect it in case you need to back out of a purchase after making an offer?
Contingencies protect your earnest money by limiting the terms of the offer
The terms of an offer made by a buyer often include contingencies or limitations. For example, most buyers will make an offer contingent on a property passing inspection or having an appraised value that reaches the amount they need to finance for the purchase. Some buyers will also make an offer contingent on the sale of the home they live in currently.
Including contingencies helps ensure that if you have to back out of the sale because you can’t sell your current home or the property isn’t worth what you thought it was, you won’t lose the earnest money submitted with your offer. Rather than just using boilerplate offer paperwork, it may be in your best interests to carefully customize any purchase offer you submit to protect yourself as much as possible when buying a home. An experienced attorney can help.