What happens to earnest money if the buyer breaches?

• A. It is forfeited to the seller or applied per contract terms if the buyer breaches.
• B. It is returned automatically if the buyer breaches.
• C. It goes to the broker.
• D. It becomes part of the property's purchase price by default.

Answer: (A)

Earnest money is the buyer’s deposit held in escrow to show commitment and help secure the contract. When the buyer breaches, that money is typically kept by the seller as compensation for taking the property off the market and as a remedy for the breach, as stated in the contract. It’s not automatically returned to the buyer, nor does it go to the broker or become part of the purchase price by default. The contract usually spells out that a breach by the buyer results in the earnest money being forfeited or applied to damages, protecting the seller and providing a clear remedy. Of course, if a valid contingency applies or both parties terminate, the funds may be handled differently per the agreement.