What typically happens to earnest money if the transaction falls through due to the buyer's fault?

In a real estate transaction, earnest money serves as a demonstration of the buyer's commitment to purchasing the property. If the transaction does not proceed because of the buyer's actions—such as failing to secure financing, backing out without a valid reason outlined in the purchase contract, or not meeting contractual obligations—the seller typically has the right to retain the earnest money as compensation for the inconvenience and lost opportunity.

This retention is based on the principle that the earnest money is intended to cover any costs or potential losses incurred by the seller due to the buyer’s fault in the transaction. It's important for buyers to understand that once they commit earnest money, they should proceed with the transaction in good faith to avoid losing that deposit if they decide to withdraw without just cause.

In contrast, if the earnest money was tied to contingencies that were not met due to reasons outside the buyer's control, different arrangements may apply, and earnest money might be returned. Various states have specific laws governing earnest money, but generally, keeping the earnest money is a common outcome in cases of buyer fault.