When buying a home, it’s standard practice to put down a small portion of the purchase price as what’s known as an earnest money deposit. This money, which is held in escrow and credited toward the amount buyers need to bring to closing, is a commitment to the seller that you’re genuinely interested in buying the property and acting in good faith.

This is because earnest money gives the seller a small amount of protection; if a buyer walks away from the purchase simply because they had second thoughts or found a home they like more, sellers can keep some or all of the deposit to compensate them for their time and trouble.

But what if, as a buyer, the deal fell apart through no fault of your own? This is more common than many realize; according to the National Association of Realtors (NAR), about 1 in 20 pending sales fall through. With many predicting that the housing market will accelerate in 2025, that could translate to thousands of transactions in the coming year that go off the rails at the last minute.

In many cases, buyers can walk away from the sale with a full refund of their earnest money if they follow the rules. But much depends on the terms of the sale contract and which party was behind the deal falling through. Let’s explore some situations in which buyers can expect to receive their earnest money back and where they might be out of luck.

Your Loan Falls Through

A standard purchase agreement usually includes a loan financing contingency that releases the buyer from the transaction if they don’t get approved for a mortgage. This is a basic, common sense protection; if the buyer is applying for a $500,000 mortgage and it doesn’t get approved, it doesn’t make sense for the seller to try to enforce the purchase agreement.

As long as the buyer hasn’t waived this financing contingency, they’ll have their earnest money refunded as they exit the sale.

The Property’s Title Has Issues

Another standard contingency is related to the property’s title. In general, it states that a buyer can exit the transaction with earnest money in hand if title defects are discovered.

A title defects is a general term encompassing any potential competing claims to the property’s title. These could include outstanding liens that need to be resolved, clerical mistakes in previous transactions that throw the rightful ownership into doubt, or undiscovered heirs that might have a legitimate claim to the property.

Since claims like these can imperil the seller’s legal right to sell the property, as well as the buyer’s continuing ability to own it legitimately, title problems are seen as a deal breaker. If a title company finds issues with the title, the buyer can almost always cancel the deal and get their earnest money refunded.

The Home Didn’t Pass Inspection

Typically, buyers will get a professional home inspection after the offer is accepted to make sure there are no significant issues with the property. If the inspection discovers problems, the buyer has a range of options, from negotiating a lower price to asking the seller to perform repairs before closing to walking away from the deal. As long as they have an inspection contingency in the purchase agreement (and act within the time specified), they can cancel the deal and get their earnest money refunded in full.

However, some buyers give up their inspection contingency. In very competitive markets, buyers sometimes waive it to make their offer more appealing to the seller since it speeds up the sale and takes away a potential exit path for the buyer. This is a calculated risk, since they’ll be legally obligated to move forward with the sale even if the inspection finds major problems with the home.

If the Seller Doesn’t Complete Negotiated Repairs

Let’s say that a buyer has an inspection done, problems with the home are discovered, and the buyer negotiates with the seller to have those problems remedied before the property changes hands. If those repairs aren’t done by closing, the buyer can cancel the deal and expect a full refund of their earnest money.

A Low Appraisal

The lender uses a home appraisal to ensure the property is worth the amount of money they’re lending the buyer for the purchase. If the home is appraised at a lower amount than the mortgage, this can throw a wrench into the transaction.

In this situation, the buyer has a few options: negotiate with the seller to lower the price to the level of the appraisal, make up the difference out of pocket, or walk away from the purchase. This can be a tough spot for buyers; many need incentives like cash home buyer rebates to make the deal work. If the appraisal comes in $10,000 lower than the loan amount, they can’t just close that gap with cash.

Like the previous circumstances we’ve touched on, this depends on whether there’s an appraisal contingency in the purchase agreement, which isn’t always a given. According to NAR data from mid-2023, 21% of U.S. buyers waived their appraisal contingency.

The Buyer Hasn’t Sold Their Current Home

Many buyers will include a home sale contingency in the purchase agreement stating that they can withdraw from the purchase if they can’t sell their current home within a specific period. The buyer may not want to pay two mortgages for two homes, or they might need the sale proceeds from their current home to finance the purchase of their next one. Regardless, the buyer can use this contingency to exit the deal, earnest money in hand, if they can’t sell their present home. However, buyers should be aware that sellers may be more wary of offers with home sale contingencies; it’s a significant factor outside either side’s control that could seriously derail the seller’s timeline.

If the Seller Walks Away

While it’s more common for the buyer to get cold feet about a sale, sellers sometimes change their minds at the last minute, too. In the event of a change of heart on the part of the seller, the buyer is entitled to a full refund of their earnest money.