‍What is an Earnest Money Deposit?

Typically within a real estate transaction, a seller will require that the buyer to put a good faith deposit in escrow with a title agency or other third party. This is called an earnest money deposit. This is to provide compensation to the seller if the buyer backs out in violation of the purchase contract. This would be due to the inspection contingency or any number of contingencies included in the purchase contract. Most jurisdictions in the US require the funds be released within 48 hours of the buyer dropping out of the contract. However, what happens when the parties do not agree which party is owed the earnest money deposit? How does the earnest money dispute get resolved?

When Earnest Money is in Dispute

Depending on the terms of your escrow agreement, your escrow agent may hold the money and documents while the parties discuss, or they may hand it over to a court for them to make the final decision about who is owed what. The escrow agent does not make any decisions or contract interpretations, only follows the direction of the parties. Typically the parties will try to come to terms between themselves and resolve the issue. This is the cheapest and easiest way to handle the dispute over an earnest money deposit. If the parties absolutely cannot see eye to eye, they will need to handle it through the court system. This can take a very long time, and then the parties are paying for legal fees, arbitration / mediation fees, and more.