If a buyer defaults and the earnest money deposit is forfeited, who typically receives the funds?

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Study for the Washington Real Estate Fundamentals Rockwell Exam. Utilize flashcards, multiple choice questions with hints and explanations. Prepare thoroughly for your real estate career!

Multiple Choice

If a buyer defaults and the earnest money deposit is forfeited, who typically receives the funds?

Explanation:
Earnest money acts as security that the buyer will follow through with the contract. When the buyer defaults and there are no valid contingencies left, that deposit is usually treated as liquidated damages in favor of the seller. The escrow agent holds the funds and then disburses them to the seller per the contract’s terms. The lender or the buyer don’t receive the forfeited funds. This is why the typical recipient is the seller. If the contract were terminated for a buyer’s valid contingency or by mutual agreement, the earnest money would usually be returned to the buyer instead.

Earnest money acts as security that the buyer will follow through with the contract. When the buyer defaults and there are no valid contingencies left, that deposit is usually treated as liquidated damages in favor of the seller. The escrow agent holds the funds and then disburses them to the seller per the contract’s terms. The lender or the buyer don’t receive the forfeited funds. This is why the typical recipient is the seller. If the contract were terminated for a buyer’s valid contingency or by mutual agreement, the earnest money would usually be returned to the buyer instead.

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