If a buyer backs out of a deal, what happens to the earnest money deposit?

When a buyer backs out of a real estate deal, the typical scenario involves the earnest money deposit being retained by the seller as liquidated damages, provided the seller has fulfilled their obligations under the purchase agreement. This retention serves as a compensation mechanism for the seller, who has likely incurred costs and lost time due to the canceled transaction.

The concept of liquidated damages is intended to establish a predetermined amount of compensation for the seller in the event the buyer defaults. In this context, the earnest money is seen as a good faith deposit demonstrating the buyer’s commitment to the transaction. If the buyer fails to follow through without justifiable cause, the seller may justifiably keep this deposit.

While there are conditions under which the buyer might receive the earnest money back—such as if the buyer withdrew due to a contingency stated in the contract—these conditions are not the typical outcome in cases of a simple buyer withdrawal. Therefore, option A accurately reflects the common practice regarding earnest money deposits when a buyer backs out of a deal.