Lawsuits, Rights Losses, and Bad Publicity: Here’s What Happens if You Don’t Make An Earnest Money Payment
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
What happens if a buyer doesn’t deposit earnest money? If you’re a commercial real estate (CRE) developer, you may not have considered this question, but the answer might make or break your next deal.
Earnest money, also known as a good faith deposit, is a common requirement in many parts of the United States.
In competitive markets such as Texas, Georgia, and North Carolina, realtors typically insist on an earnest deposit for potential buyers to draw out serious bidders. This amount can vary drastically state by state in the commercial real estate market.
If you’ve never had to deal with this type of down payment before, you may find yourself grappling with some important dilemmas, such as:
- Not knowing what happens if a buyer doesn’t deposit earnest money
- Being unable to quickly raise these funds to secure the real estate transaction
- Feeling unsure of how to get your earnest money back should things go wrong.
So, what to do?
Well, like with many things in life, the first step is knowledge. Once you know what the benefits of making such a payment are, or what happens if earnest money is not paid, then you’ll be in a better position to take the next step.
This article aims to answer that important question by assessing the implications and risks of not making an earnest money deposit.
Why risk finding out what happens if you don’t deposit earnest money? Sign up to Duckfund and we’ll put you on the fast track to an earnest money deposit without the need for credit checks or bank statements.
Why is an earnest money deposit important?
From a seller’s perspective, an earnest money check makes perfect sense.
Many real estate agents will tell you that the property market in the United States is extremely competitive right now, in both business and residential sectors.
Properties often receive multiple offers, sometimes for figures above the sales price. Residential buyers may want a home inspection, while business investors want to conduct their own checks, which take up considerable time and expense.
Sellers need a way of filtering out time-wasters and earnest money is a useful solution.
In the commercial real estate market, this is particularly important as investors often go head-to-head when it comes to snapping up CRE property that has seen a rental growth of as much as 20% in some states, according to the National Association of Realtors.
Earnest money, then, determines which investors are serious, and those who are wasting the seller’s time.
The earnest money process
Depositing earnest money is a straightforward procedure.
Potential investors transfer earnest money funds via wire transfer into an escrow account, normally managed by a real estate broker. The amount depends on the property’s location, ranging from between 1% and 5% of the purchase price in Colorado and Texas to up to 10% in fast-moving markets.
The first investor that makes this payment has priority on the property ahead of rivals.
The escrow agent holds the funds until the transaction completes, when they’re either released to the seller as part of the deal, or refunded to the buyer for previously outlined reasons.
Having earnest money in escrow protects sellers from damages or losses in the event of a buyer default.
Should the investor pull out unfairly, then the funds cover the costs of taking the property off the market and any due diligence checks that have taken place.
Yet, that only covers sellers. What happens if you don’t pay earnest money? What are the consequences?
What happens if a buyer doesn’t deposit earnest money?
Earnest deposits for commercial real estate tend to be substantial figures.
CRE prices have been rising steadily in the United States since 2008, so even just a few percent of the purchase price amounts to a lot of money. Yet the earnest money figure can vary hugely across the United States.
A $1 million office building, for example, could demand a $100,000 earnest down payment in New York thanks to the common 10% percentage applied, yet a building of the same value in North Carolina might only command a tenth of that figure.
As an investor, it might be tempting to negotiate a way of skipping this stage with the seller, especially if the funds aren’t readily available, however this may jeopardize the deal or even put you in legal trouble.
So what happens if a buyer doesn’t deposit earnest money? Let’s take a closer look.
Breach of contract and potential legal consequences
Let’s start with the worst-case scenario for what happens if a buyer doesn’t deposit earnest money. If you’ve signed a purchase agreement that stipulates this payment, then not following through with it can constitute a breach of contract in the eyes of real estate law.
Contract breaches can lead to lawsuits seeking damages, which typically result in a lengthy legal process which you’d likely lose.
It might even be difficult to find a law firm that will represent you in such a case. Most real estate attorneys would simply point to the signed sales contract and tell you that you’re obligated to make the earnest money payment.
It may put the seller in an uncomfortable position
Earnest money acts as a form of financial protection for the seller: if the buyer backs out for no reason, then the vendor is often entitled to keep the amount as compensation for the losses they’ve incurred.
Justin Daniel is a real estate agent for eXp Realty based in North Carolina, where every property transaction has some kind of due diligence or earnest money element built into it. He stresses the importance of earnest money there.
“Not having any earnest money in place is a liability to the seller as the buyer has no skin in the game. This means they can walk away from the contract at any time, leaving the seller in a troublesome spot.”
Sellers with multiple offers to consider are thus more likely to opt for a deal where the buyer is willing to put their money where their mouth is – and avoid the risk of getting caught cold should the investor walk away further down the line.
You risk losing real estate purchase rights
Even if the seller doesn’t pursue legal action should you not pay earnest money following an agreement to do so, they’ll almost certainly terminate the purchase contract.
This will, of course, mean you lose the right to purchase the property, allowing other interested parties to come forward and stake their claim.
Reputation damage
In a competitive CRE industry, reputation matters. Sellers, and lenders for that matter, often agree to do business with investors if they have a history of honoring commitments.
Should you not pay earnest money following the signing of a real estate contract, then be prepared for the blow to your reputation that comes with it.
Word spreads quickly in the marketplace and future sellers may hesitate to do business with you.
Even if you haven’t signed an agreement, signaling your interest then not showing your funds can lead to you acquiring a reputation for flakiness among real estate agents, which may affect future deals.
What are the benefits of paying earnest money on time?
In a tough CRE market, it’s easy to dwell on potentially negative scenarios. It can also be misleading.
What happens if a buyer doesn’t deposit earnest money in Florida, for example, is different from a situation where a buyer didn’t deposit earnest money on time in New York.
Instead, we can concentrate on the positive outcomes of paying earnest money, which include the following benefits.
You gain negotiating power
Property purchases are built on negotiations between buyers and sellers: a deal can often break down at the first sign of mistrust between the two parties.
Making an earnest money deposit, then, is a powerful move for you, as the buyer, to make. The seller is now more likely to regard you as serious and motivated, which could lead to favorable terms or concessions during negotiations.
You expedite the buying process
CRE investors typically wish to avoid drawn-out buying processes. They tie up time and capital that they could use for other business transactions, including real estate purchases.
If you’re one of them, then you can move things along by making earnest money payments. The seller will see that you’re serious and will likely instruct their team to work toward an earlier closing date, including completing a title search and relevant paperwork quicker than normal.
You build trust and credibility
Putting money down shows that you’re capable of demonstrating good faith to sellers who will probably see you in a positive light
This counts for a lot in the CRE industry where referrals are commonplace between both buyers and sellers. You may find that a positive reputation helps you when pursuing your next purchase.
You secure the property and build your portfolio
Let’s not forget the most important benefit.
Being the first to make the payment puts you ahead of your rivals and secures the property for you in all but name. You might have to be quick, though. In some deals investors are extremely quick in putting their money down, so it’s best to make the payment as soon as possible — unless you wish to find out what happens if you don’t pay earnest money on time!
Once the checks are complete and the terms of the contract are met, then you’re on your way to getting the keys and adding a valuable slice of real estate to your portfolio.
Is earnest money refundable?
Now that we know what happens if the buyer does not deposit earnest money, you may wish to know whether this amount is refundable.
Unfortunately, there’s no universal ‘yes or no’ answer. Instead, a refund will come down to whether you or the seller have followed the terms of the purchase contract, including stipulations known as ‘contingencies’.
If the seller doesn’t meet the terms of the contract, then the amount is refundable.
If, however, the buyer fails to follow the terms, or backs out for a reason not listed in the contingencies, then they risk losing the money.
Let’s look at some examples of contingencies and get a clearer picture of what they may entail.
Appraisal contingency. When the home appraisal is lower than the agreed buying price, then you have the right to back out – or negotiate a lower price.
Inspection contingency. A property inspection might show some serious defects that you weren’t aware of, in which case you can refuse to buy the property.
Financing contingency. Should you not qualify for financing then this clause means you don’t have to continue with the purchase.
Existing home sale contingency. This gives the seller a get-out should you need to sell your home to finance the sale and the home buying process is blocking the completion of the CRE transaction.
Remember: each CRE purchase is unique, so some or all of the above may not apply to your deal. Always seek legal advice concerning earnest money refunds to find out where you stand.
Want to know how you can get an earnest deposit in 24 hours without dipping into your personal capital? Sign up to Duckfund now and get access to the round-the-clock finance that will accelerate your CRE portfolio.
CRE Classified: 7 Most Investable CRE Asset Classes Ranked By Performance in 2024
Want to see great returns on your commercial investments? Maximize your portfolio with 2024’s top 8 CRE asset classes.
Multifamily Market Trends 2024-2025: A Snapshot of Key Metrics
Look ahead to the multifamily market in 2025 with Duckfund’s in-depth analysis of current market conditions.
Hottest CRE Markets Forecasted: 7 US Cities to Watch in 2025
The difference between cities like Newark and Nashville is their CRE markets and whether you should invest in them or not.
Multi-Family Commercial Real Estate: Everything You Need to Know
All successful multifamily deals come from deep industry knowledge: this is the place to start.
The Truth Behind 7 Commercial Real Estate Myths
Dealing with facts rather than falsehoods is essential for any commercial property purchase.
How to Get Into Commercial Real Estate Development: 7 Tips to Turn Pro
For all developers and investors who want to make serious money, here’s how to get into commercial real estate successfully.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
How to Find Vacant Properties and Outsmart the Competition
Here’s how to find vacant properties before they go to market and the bidding wars start.
Single Tenant vs Multi Tenant: Pros and Cons for Commercial Real Estate
Whether you should buy single-tenant or multi-tenant commercial properties depends on your risk tolerance and investment strategy.
How Big Data in Commercial Real Estate Is Changing The Way Developers Profit
All big property companies are going digital. The key is knowing how they’re doing it.
Commercial Property Development Finance: 6 Ways To Secure The Right Capital
These financing options will help you carry out the commercial venture you’ve always dreamed of.
ESG, PropTech…And Bamboo. What’s Driving Commercial Real Estate Sustainability Right Now?
Knowing the latest green trends will help you make your next project a more successful one.
Top Commercial Property Operating Expenses and How to Reduce Them
With decelerating rents across multiple CRE sectors, reducing operating expenses is the most appropriate way to increase net operating income and cap rate.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Upzoning, Downzoning, and Everything In Between: A CRE Investor’s Guide to Commercial Property Zones
Getting your head around zoning laws will help you make a success of your CRE investment.
How To Find The Value Of Commercial Property: A Guide For Property Developers
To be a successful developer, you must find the right place for properties you buy and charge the right price for the ones you sell.
Don't Get The Wrong Loan: Your Guide to Mastering CRE Financing
Any CRE investor worth their salt must know which financing works best for them.
Funding Mastered: How to Find the Right Commercial Building Financing for Your CRE Investment
Growing your property portfolio is possible, but you’ll need to make some key calculations.
Unlocking Opportunities: How to Raise Capital in a Tight Lending Market
Some investors see doom and gloom but there are big opportunities in the commercial real estate market for those who can focus on the positives.
How Much Does it Cost to Build a Warehouse: A CRE Investor’s Guide
Funding warehouse construction is tough, so you’ll need a detailed building plan to follow.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Should You Dive into Self-Storage Financing? Unpacking the Potential for CRE Investors
Making money from self-storage is a hot topic in the CRE market, but you’ll need to know how to finance it.
3 Commercial Real Estate Challenges You Can Also Profit From
Here’s how to outsmart the biggest challenges the CRE market throws at you.
Powering the Cloud: Your Guide to Data Center Financing
So you are looking to invest in data centers, but how much will it cost?
12 Real Estate Investing Tax Strategies You Should Know
These guidelines will help you get the most out of your CRE income.
Is Earnest Money Refundable? Here’s What The Experts Say
Locking tens of thousands of dollars in escrow is not a gamble if you understand when and how earnest money is refundable.
Faster Earnest Money Deposits: The Secret Weapon in Winning CRE Deals
Earnest money deposits have become so important that CRE investors looking to build successful portfolios cannot ignore them.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Get Your Properties in Order: 4 Expert CRE Investment Strategies To Help In A Tough Market
We’re going through a tough CRE market, but knowing how to invest wisely will get us through it.
7 Real Estate Law Firm Marketing Ideas Every Attorney Should Use
The property law market is crowded, but you can still stand out from the crowd
The Ultimate Guide to Good Faith Deposits in the Big Apple
From the paperwork to the payment, dive into the protocols and practices surrounding good faith deposits in NYC’s commercial real estate transactions.
Good Faith Deposits in Commercial Real Estate: A Complete Guide
Almost every CRE deal now requires a good faith deposit, so CRE investors must understand what good faith deposits are about and how to get them for every deal.
6 Mortgage Broker Marketing Ideas You May Not Have Thought Of
If you haven’t explored these mortgage broker marketing ideas, then now’s a good time to try.
How Option Fees & Earnest Money Work in Real Estate Deals
Make the right choice about financing real estate and master the differences between option fees, earnest money, and call options.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Is Gator Lending Legit? Bringing Clarity to an Important Debate
Gator lending, a form of creative financing, is becoming popular. But is it legitimate or should property investors beware?
How Much Are Earnest Money Deposits in Michigan? The Definitive Guide
The right understanding of earnest money deposits in Michigan will aid prospective buyers, investors, and property flippers in confidently cinching commercial real estate deals in The Great Lakes State.
What is Gator Lending: A Simple Guide to Creative Financing in Real Estate
Gator lending is providing an alternative for real estate investors who are fed up with traditional lending becoming more inaccessible and stressful.
6 Proven Title Company Marketing Ideas to Unlock More Sales
Wondering how to get your title company’s name in front of new customers? Look no further.
Commercial Real Estate Analysis: How to Find and Select the Right Properties
Get commercial real estate analysis right, and you’ll be able to select profitable properties and avoid loss-making ones.
Commercial Real Estate Market Analysis 2024: 5 Factors Set to Move The Market
2024 will be a make-or-break year for CRE property developers. Get ahead of the market by leveraging the 5 factors laid out in this commercial real estate market analysis.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Earnest Money Deposits in Tennessee: What You Need to Know Before Making an Offer
Nashville is one of the nation’s top 5 commercial real estate markets, making investments in Tennessee worthy of further research.
A Deep Dive into Earnest Money Deposits in Arizona: All You Need to Know
Understanding how earnest money deposits in Arizona work will assist you in securing a successful CRE sale in Phoenix, the US’ second hottest market to watch for 2024.
Sign Now, Pay Later: Close CRE Deals Faster with Duckfund
Thought securing a property with no money down was impossible? Think again.
Should You Buy Office Property With An LLC? All You Need to Know
CRE investors might be struggling to secure office space right now. But then they might not know about this creative soft deposit solution.
Why Releasing Earnest Money Prior to Closing Isn’t as Hard As It Looks
Putting down earnest money can be difficult and you’re not guaranteed to get it back. Knowing how to release it is vitally important.
Strategies for Success: How to Flip Commercial Real Estate Contracts for Profit
Flipping commercial real estate contracts is a low-cost and low-risk investment strategy that any real estate investor can explore.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
How to Safely Pay Earnest Money Online Using an LLC
Problems with earnest money payments can ruin a property deal. But they can be avoided if you use this method.
How to Flip Commercial Real Estate Like A Pro
Flipping commercial real estate has its risks, but with a good grasp of the fundamentals you can generate high returns while minimizing risk.
How Much Is Earnest Money for Commercial Property in the US: A Complete Guide
Understanding earnest money is crucial to closing commercial real estate deals in many US states.
Ignore Your Bank: Buying Commercial Property With No Money Down is Possible
Illiquidity can be a limiting factor for commercial real estate investors in today’s market. But with the right strategies, even illiquid investors can thrive.
How Much is Earnest Money in Texas: A Guide to Take Your Real Estate Game to the Next Level
How much is earnest money in Texas, and why, how, and when should it be paid? In this guide, we take you through the finer details of earnest money deposits in the USA's hottest real estate market.
How to Finance a Commercial Property Without Worrying About Liquidity
Learn how to finance a commercial property via the diverse funding options available in 2023. Besides traditional banking loans, online platforms now offer great financing quickly and cost-effectively.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
How Much is Commercial Land Worth: 4 Methods for CRE Valuation
Knowing what a piece of commercial land is worth will help you avoid overpaying for it. Here is your complete guide to understanding how to conduct commercial land valuation.
How Much Earnest Money Is Required in Georgia? (And Other FAQs, Explained)
Understanding how much earnest money is required in Georgia, when and how to pay, and who holds the earnest money are all vital to closing a successful property sale in one of the US’ top markets.
How Much Earnest Money Is Required in Illinois: A Comprehensive Guide
Boost your investment portfolio by investing in Chicago, Illinois, one of the US’ top gateway markets.
Finding Your Way in Florida Real Estate: A Complete Guide to How Much Earnest Money Is Required in Florida
Understanding how much earnest money is required in Florida is key to securing property in one of the top housing and commercial real estate markets in the United States.
Flip the Game: 8 Tips for Commercial Real Estate Flipping
Having capital always helps in a competitive CRE market, but sometimes getting smart leads can lead to the biggest flip gains.
Earnest Money Deposits vs Down Payments: How They Differ and Why You Should Care
Earnest money deposits and down payments are both important parts of closing real estate deals, but there are significant differences that investors must be aware of.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
How Does Earnest Money Work in Commercial Real Estate?
As earnest money becomes more common in commercial real estate, investors must understand what it is all about and how to secure these funds quickly when they need them.
Earnest Money in Colorado: Seal the Deal Before Anyone Else Does
Understanding the process of paying earnest money in Colorado can spell the difference between closing and losing a deal.
A Winning Investment: Learn The Difference Between Due Diligence Fees and Earnest Money
Both can make or break your property deal, so understanding these two key terms (and how they differ) is crucial.
Future-Proof Your CRE Portfolio: 10 Essential Trends Developers Should Watch (2024)
The CRE market is unpredictable but developers who stay informed will ride its waves.
Lacking Cash? 4 Ways To Raise a Soft Deposit for Commercial Property
Current economic conditions make raising a soft deposit seem tough, but not if you know where to look.
Explaining Due Diligence and Earnest Money in South Carolina
Understanding the uses and distinctions between due diligence and earnest money in South Carolina is crucial to successfully navigate today's competitive market and seal valuable CRE deals.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
5 Commercial Real Estate Tech Trends You Can't Afford to Ignore (But Most Investors Do)
Digital transformation is changing the world. The CRE market is no different.
Ahead of the Curve: 7 Commercial Real Estate Trends Set to Shake Up 2024
The past year’s bumpy ride in CRE is far from over, but a new investment landscape emerges for the careful investor. You can thrive amid the chaos by capitalizing on 2024’s top commercial real estate trends.
Commercial Land Development: 8 Steps to Build Commercial Properties From Scratch
Commercial land development is a profitable enterprise for those who are willing to follow the process. Below is a step by step guide to doing it right.
Are Earnest Money Deposits Refundable? Everything CRE Developers Need to Know
CRE developers can use earnest money deposits to their benefit (not as a roadblock). It comes down to understanding your contract and different US state norms.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.