Earnest money is a deposit a home buyer makes to show they are serious about purchasing a property. In Oregon, buyers often submit it around the time an offer is accepted and the purchase agreement is finalized. Whether that money is refunded or forfeited usually depends on the terms of the contract, including any contingencies that allow the buyer to back out under specific circumstances.
Let’s start with a basic definition. The phrase “earnest money” pretty much says it all. This is money paid by the home buyer that shows they are earnest (or sincere) about buying a particular house. It shows the seller that the buyer is indeed serious about purchasing.
This money can be applied to the home buyer’s purchase if the transaction moves forward. In other cases, it can be transferred to the seller if the buyer backs out of the deal without justifiable cause.
In Oregon, the earnest money deposit is typically paid when the buyer and seller enter into a contract. And here we are talking about the real estate purchase agreement or contract. It’s customary for buyers to make the earnest money payment when they submit an offer. The funds are usually held by a neutral third party, such as an escrow company.
If the transaction proceeds forward, the earnest money deposit is typically applied to the home buyer’s closing costs or down payment.
But the earnest money is more than just a show of sincerity. In theory, it reimburses the seller in cases where the buyer fails to live up to their obligations under the real estate contract. In other words, it compensates the seller for “damages” resulting from a buyer who backs out of a contract with no good reason.
“Rather than simply an indication of intent and ability to perform, earnest money became the source of funds to pay damages if the deal failed. The shift from a source of confidence in the buyer’s financial position to the source of funds to pay damages is subtle but critical to understanding the modern use of earnest money.”
Once your offer is accepted, it helps to confirm a few details before sending funds. Make sure you know who will be holding the deposit, when it is due, and how the contract says it must be delivered. You should also review the sections of the purchase agreement that explain contingencies and the circumstances under which earnest money could be refunded or claimed. Finally, keep copies of your payment receipt and any related records in case questions come up later.
So, under what conditions can the seller claim and keep the buyer’s earnest money in Oregon?
The contractual circumstances that would allow a seller to claim this money can vary with the contract. In most cases, these stipulations are clearly spelled out within the real estate contract, to avoid misinterpretation. This is partly why it’s so important for both the buyer and seller to read/understand the purchase agreement.
There are legitimate reasons for a buyer to back out of a contract, and these can be written into the contract as “contingencies.” For example, two common contingencies have to do with the home inspection and the buyer’s mortgage financing. These allow the person buying the home to exit the transaction if a major issue is uncovered during the inspection, or if a problem arises with the mortgage loan.
On the other hand, if the buyer backs out simply because of a change of heart or “cold feet,” the earnest money could be transferred to the seller. But again, it depends on the specifics of the real estate agreement.
There is no single standard amount that works for every offer. The right earnest money deposit depends on the home’s price, how competitive the local market is, what sellers in that area tend to expect, and how much risk the buyer is comfortable taking on.
Just as important, buyers should think about the protections written into the offer. A larger deposit may make an offer look stronger, but it can also put more money at risk if the contract terms are not understood or deadlines are missed. Contingencies, timing requirements, and other purchase agreement details can all affect how comfortable a buyer should feel with the amount.
This is one of the reasons why we encourage home buyers — especially first-time buyers — to work with an experienced real estate agent. An agent can help you judge what is reasonable for the Oregon town or city where you are buying, how your deposit compares with current market expectations, and how that amount fits with the rest of your offer.
Do you have questions about home loans in Oregon? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company serving the entire state of Oregon, as well as Washington, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest since 1992. Contact us today with any questions you have about mortgages, or visit our website to get an instant rate quote.
Earnest money is a deposit a home buyer makes to show they are serious about purchasing a property. In Oregon, it is generally tied to the purchase agreement and can be applied to the buyer’s costs at closing if the sale moves forward.
In Oregon, earnest money is often submitted around the time an offer is accepted and the purchase agreement is finalized. It is also customary for buyers to make the payment when they submit an offer.
The funds are usually held by a neutral third party, such as an escrow company. Buyers should confirm who will be holding the deposit before sending funds.
It can be refundable, but that usually depends on the terms of the contract. Contingencies in the purchase agreement may allow a buyer to back out under specific circumstances and still keep the deposit.
It depends on why the deal falls through and what the contract says. If the buyer exits under a valid contingency, such as a major inspection issue or a financing problem, the earnest money may be refunded.
Yes, a seller may be able to claim the earnest money if the buyer backs out without a valid contractual reason. Whether that happens depends on the specific terms written into the real estate purchase agreement.
Who ultimately receives the earnest money depends on the contract and the reason the transaction did not close. It may go back to the buyer under a contingency, or it may be transferred to the seller if the buyer defaults without justifiable cause.
If the transaction proceeds, the earnest money deposit is typically applied to the buyer’s closing costs or down payment. It is not necessarily separate money that disappears after it is paid.
There is no single standard amount that works for every offer. The right amount depends on the home’s price, how competitive the local market is, what sellers in that area expect, and how much risk the buyer is comfortable taking on.
Before sending funds, confirm who will hold the deposit, when it is due, and how the contract says it must be delivered. It also helps to review the purchase agreement sections covering contingencies and refund terms, and to keep copies of your payment receipt and related records.
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