What should sellers do with an earnest money check when they receive it?

Sellers should ask their agent to cash the check upon receipt if possible. The cash will then be held in escrow until closing, which also prevents the buyer from withdrawing funds from the account where the earnest money originated.

When can a seller keep the earnest money deposit?

A seller can keep the earnest money if contingencies in the contract are fulfilled and the buyer fails to close on the agreed date. It's important for sellers to review contingencies carefully and ensure any "back door" addendums are closed to protect this right.

What is a 'time of essence' clause and why should sellers include it?

A 'time of essence' clause makes the closing date binding in a sales contract. Adding this clause helps sellers protect their earnest money deposit by ensuring that if a buyer cannot close by the deadline, the seller retains the deposit.

Why is it important for sellers to understand contract contingencies?

Contract contingencies can provide multiple ways for a buyer to back out of a sale, so understanding them helps sellers identify and close any loopholes. Once contingencies are fulfilled, the seller's right to keep the earnest money if the buyer doesn't close becomes enforceable.

Earnest Money Deposits: Three Things Sellers Should Know

By Anne-Britt OstlundSeptember 7, 20221 min read

When buyers put an earnest money deposit down on a home, they're making a good faith offer to purchase. But sometimes it can feel like they're able to get the deposit back for any reason.

Earnest Money Deposits: Three Things Sellers Should Know — photo 1

Here are three things sellers should know to keep the deposit fair and square:

1. If you're the seller's agent, cash the check if possible.

To help prevent buyers from pulling out of a contract, discuss cashing the earnest money check upon receipt with your seller. The cash will be escrowed until the deal closes. A cashed check will also prevent the buyer from clearing funds out of the account from which the earnest money came.

2. Understand the contingencies.

Contract contingencies provide numerous ways for a buyer to back out of a sale. Sellers need to review and close any "back door" addendums. If the contingencies are fulfilled and the buyer doesn't close, the seller can keep the earnest money.

3. Watch the contingency time frames

Contingencies obviously must be met within certain time frames. Suggest that your sellers add a "time of essence" clause to the sales contract. It makes the closing date binding. If the buyer can't close, the seller can keep the deposit.

If you’re thinking about buying a home or making a move, partner with a trusted real estate professional like Mountain Rose Realty to get started today!

Frequently Asked Questions

What should sellers do with an earnest money check when they receive it?: Sellers should ask their agent to cash the check upon receipt if possible. The cash will then be held in escrow until closing, which also prevents the buyer from withdrawing funds from the account where the earnest money originated.
When can a seller keep the earnest money deposit?: A seller can keep the earnest money if contingencies in the contract are fulfilled and the buyer fails to close on the agreed date. It's important for sellers to review contingencies carefully and ensure any "back door" addendums are closed to protect this right.
What is a 'time of essence' clause and why should sellers include it?: A 'time of essence' clause makes the closing date binding in a sales contract. Adding this clause helps sellers protect their earnest money deposit by ensuring that if a buyer cannot close by the deadline, the seller retains the deposit.
Why is it important for sellers to understand contract contingencies?: Contract contingencies can provide multiple ways for a buyer to back out of a sale, so understanding them helps sellers identify and close any loopholes. Once contingencies are fulfilled, the seller's right to keep the earnest money if the buyer doesn't close becomes enforceable.