What Is an Earnest Money Contingency in Real Estate?

An earnest money contingency protects a buyer’s deposit if certain conditions in the purchase agreement are not met. If the buyer cancels for an approved reason—like inspection issues, appraisal problems, or loan denial—they receive their earnest money back.

✅ How an Earnest Money Contingency Works

When a buyer makes an offer, they usually include earnest money to show good faith. This money goes into escrow during the transaction.

An earnest money contingency allows the buyer to receive their deposit back if they cancel based on approved contract conditions. Common protected scenarios include:

If a buyer cancels for a reason *not* listed in the contract, the seller may keep the earnest money as compensation.

💡 Why Earnest Money Contingencies Matter

These contingencies protect both sides:

  • Buyers avoid losing money if something goes wrong
  • Sellers know buyers can’t walk away without a valid reason
  • Lenders require certain contingencies for financing approval
  • FSBO sellers get structure and protection without an agent

When both parties understand how earnest money works, the transaction runs much smoother.

📍 FSBO Tip: Always Use Written Addendums

If you and the buyer agree to change deadlines or conditions, use a formal purchase addendum. Verbal agreements about earnest money are not enforceable.

Examples where addendums are useful:

  • Extending the inspection deadline
  • Allowing time for updated financing documents
  • Renegotiating price after appraisal
  • Changing the closing date

Keeping everything in writing protects FSBO sellers from disputes later.

⚠️ When Earnest Money Is at Risk

Buyers may lose their deposit if they:

  • Miss contingency deadlines
  • Cancel for reasons not listed in the contract
  • Fail to provide lender documents on time
  • Get cold feet or change their mind

Understanding the contingency timeline is essential. See: How Long Do Contingencies Last?

Browse more definitions in our Real Estate Dictionary.

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