Earnest Money vs. Option Fee: What Home Buyers Need To Know

"Earnest money and option fees are both payments buyers make when submitting an offer on a home, but they serve different purposes. Earnest money shows a buyer's commitment and is applied toward the purchase at closing. Option fees secure the buyer's right to terminate the contract during a defined option period. Both payments have specific timelines, refund rules, and conditions depending on the purchase contract."

"During the option period: The buyer can cancel for any reason and typically recover the earnest money, although the option fee is forfeited. If financing falls through: If the loan is denied despite a good-faith effort, the buyer may terminate under the financing contingency and keep the earnest money. If inspection or appraisal issues arise: If the property doesn't meet inspection or appraisal standards and no resolution is reached with the seller, the buyer can cancel under the contingency clause."

"Earnest money is a good-faith deposit that demonstrates a buyer's serious intent to purchase a home. It serves as a financial commitment to the seller, showing that the buyer plans to move forward with the transaction. If the sale falls through under certain conditions, such as inspection or financing issues, the buyer may be able to recover the deposit. However, if the buyer cancels for reasons not covered in the contract, the seller may keep the earnest money as compensation."

Earnest money is a good-faith deposit that demonstrates a buyer's serious intent and is applied toward the purchase at closing. Option fees secure the buyer's right to terminate the contract during a defined option period, with the fee typically forfeited if the buyer cancels under that right. Buyers can usually cancel and retain earnest money during the option period, under financing contingencies, inspection or appraisal failures, or if the seller fails to meet obligations. Outside those protected contingencies, the seller may keep the earnest money as compensation. Timelines, refund rules, and conditions vary based on the purchase contract.

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