Putting money on the table is often the first real step in a Florida real estate transaction. It signals your intention and commitment to seeing the deal through, but it’s not without its risks. Earnest money deposits can require a significant chunk of change (typically 1-3% of the purchase price), and many buyers and sellers don’t fully understand what that deposit means.

An earnest money deposit carries legal and financial consequences that can impact the entire transaction. Knowing how it works, when it’s protected, and when it’s at risk is key to moving forward with confidence. Here are answers to some common questions about the role of earnest money in Florida real estate deals.

Where Does the Earnest Money Deposit Go?

Earnest money is typically submitted shortly after the contract is signed and is held in escrow until closing. Escrow accounts are managed by neutral third parties, such as a title company, real estate broker, or attorney. They hold the funds until closing (or until the deal is cancelled).

The primary purpose of escrow is to keep the funds secure during the transaction. This helps ensure that it isn’t misused or prematurely claimed. If something goes wrong, such as the seller failing to meet their contractual obligations or an issue arising during the inspection, the escrow agent can return the money to the buyer, per the contract’s terms. On the seller’s side, escrow helps prevent deals from falling through at the last minute. Escrow also ensures that the property title is properly transferred to the buyer once all conditions of the sale have been met. In these ways, escrow works to protect both the buyer and seller.

When is the Deposit at Risk?

Earnest money is safely protected by the escrow agent, but just because a buyer puts down a deposit, it doesn’t mean the transaction is a done deal. The fate of the earnest money deposit depends on the terms of the purchase contract. In general:

  • If the transaction closes, the deposit is applied toward the purchase price or closing costs
  • If the buyer backs out without a valid reason, the seller may be entitled to keep the deposit
  • If contingencies are not met, the buyer may be able to recover the deposit

Common contingencies that protect the buyer include financing contingencies (i.e., the buyer can’t secure a mortgage in time), inspection contingencies (i.e., major issues are found during the home inspection), and appraisal contingencies (i.e., the home appraises for less than the sale price)

If the deal falls through, the question of where the earnest money goes ultimately comes down to the terms of the contract and why the deal fell through.

Every situation is different, but typically, if the buyer cancels the contract per a contingency (e.g., financing or inspection), they’re generally entitled to a full refund of their deposit. If the buyer walks away without a valid contractual reason, however, the seller may be entitled to keep the earnest money as liquidated damages, unless the contract says otherwise. On the seller’s side, if the seller backs out of the deal without legal cause, the buyer can usually demand a return of the deposit and may seek additional damages.

What Happens if There’s a Dispute Over Escrow?

Disputes over earnest money can arise when a transaction falls through and both parties claim the deposit. In Florida, the escrow agent cannot simply decide who gets the money. In the case of a dispute, they must follow specific procedures, which may include a written agreement between buyer and seller, a court order resolving the dispute, or a mediation or arbitration outcome (if required by the contract).

Resolving escrow disputes comes down to evaluating the facts of the purchase agreement. A real estate attorney is best qualified to guide buyers and sellers through an escrow dispute while complying with state laws governing real estate transactions.

Contact our Team at Sirulnik Law and ADS Title Services

Earnest money and escrow serve as protective measures for buyers and sellers in real estate transactions. By understanding how these elements work and partnering with experienced professionals, you can safeguard your interests and ensure a smoother transaction.

Mitigate your risks and protect your interests and assets by turning to our team at the Law Offices of Alex D. Sirulnik, P.A. and ADS Title Services, Inc. Contact us today to learn more about how we can help.