Posted By Lea Allen @ Nov 5th 2020 1:43pm In: How Real Estate Works

Facts About Earnest Money


Earnest money to some is also known as GOOD FAITH MONEY. As a buyer, offering earnest money shows your commitment to purchase the property. This means the money helps provide a sense of security to the seller by letting them know you are serious about purchasing their home. The earnest money is provided in “good faith” as collateral if the buyers walk from the deal for any reason outside of what the purchase agreement contingencies are. These different contingencies will be touched on later. 

Earnest money is not a requirement but the likelihood of an offer getting accepted without earnest money being provided is very slim. The seller is taking their home off the market and putting their trust (“good faith”) in the buyer to go through with the deal. The sellers are taking a risk by taking their home off the market to work through the purchase process. These sellers can take a huge financial hit if the buyer walks, so the earnest money acts as some sort of collateral.

Serious buyers typically offer earnest money 1%-3% of the offer price.

Who holds the earnest money?

In South Carolina, either the Brokerage Firm or the Attorney will hold the earnest money. Which brokerage firm or attorney holds the money will be disclosed in the purchase agreement. It’s normal practice for the buyers brokerage firm or attorney to hold the funds but that is not set in stone. The money will be placed in the given holders escrow account until it’s time for disbursement. We will discuss different scenarios of disbursement below.

Disbursement of earnest money? Does the buyer or seller get the earnest money?

Earnest money has contingencies that protect both the buyer and the seller in certain situations.

Repair Procedure Contingency - The buyer, at the buyers expense, has a right to get the property inspected. However, the repair procedure requires only certain items to be fixed by the seller should issues come up during the home inspection. The buyer has to request those items to be fixed in a repair addendum and these things have to be done in a timely manner. The due dates and times are established on the original purchase agreement. In South Carolina, these specific items that are required by law to be repaired or replaced if requested are: “heating systems, air conditioning systems, electrical systems, plumbing systems, water supply systems, water waste systems making these systems operable, make roof free of leaks, address environmental concerns, and to make the improvements structurally sound.” In other words, all of the systems listed above have to be in proper working condition, the property has to be structurally safe, offer environmentally safe conditions, and the roof has to be free of leaks.  If the seller refuses to repair or replace the items that are required by law if requested by the purchaser, the purchaser can walk and have their earnest money returned. The purchasers have to give the sellers an opportunity to make the repairs or replace the given issues. If the purchaser walks from the deal without giving the sellers an opportunity to fix those specific issues, the seller receives the earnest money.

Due Diligence Contingency - This is a period of time where buyers and sellers do their homework and negotiate any repair request. The repair request can be petty cosmetic request, where as the repair procedure we spoke on above it has to be main systems or structural issues that actually involve the functionality of the home. With the Due Diligence period, there is however a termination fee involved. This termination fee is not the same thing as the earnest money deposit. If the buyer walks for any reason at all during the due diligence period, the agreed upon termination fee goes to the seller. If the buyer walks after the due diligence period they forfeit their full earnest money.

There are positives and negatives about both the Repair Procedure and the Due Diligence Procedure. The best option for your transaction should be discussed with your agent. In 90% of cases, I’m more fond of the repair procedure unless the home is being sold “as is”. The repair procedure nor due diligence are applicable if the home is being sold “as is” but the buyer does still have the right to have the property inspected. In an “as is” purchase agreement, if the buyer walks, they automatically forfeit their earnest money to the seller.        

Finance Contingency - Anytime the buyer is obtaining financing, there will likely be a contingency on financing. It is important to get a pre-approval prior to making an offer or accepting an offer. Though pre-approvals are very important, please understand that a pre-approval is not final approval. There are different stages in the loan process. If the buyer gets declined the loan and there is a contingency on financing, the earnest money is returned to the purchaser.

Appraisal Contingency -  When loans are involved, the lender will not approve a loan if the property does not appraise for the agreed upon purchase price. In this case, the buyer and seller can renegotiate the price to the appraisal price or below or the purchase agreement can be called off with the earnest money being returned to the buyer. In a cash deal, the buyer and seller can also renegotiate the price to the appraised price or below or the purchase agreement can be called off with the earnest money being returned to the buyer.

Walking That For Any Reason That Doesn’t Involve a Contingency - If the buyer walks for any reason that doesn’t involve a contingency, the earnest money is disbursed to the seller. If all contingencies are met and the property is clear to close, the attorney will either take the earnest money and apply it towards the purchase or towards the attorney fees. The earnest money can also be disbursed back to the purchaser when all other funds are disbursed in a case where the purchaser provided the exact amount to the attorney required for the purchase and attorney fees.

Though it is rare, if any issues arise with the disbursement of earnest money and an agreement can’t be made, an interpleader will have to get involved. 

In regards to Earnest Money, Page 2 of 9 in the South Carolina Purchase Agreement reads: 

If you have any questions about earnest money, feel free to reach out and I will answer any questions I can. If it requires legal advice, I will guide you to the proper authority. 


Seth June

November 5, 2020 

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