What happens when a buyer surrenders their good faith deposit or earnest money?

When a buyer surrenders their good faith deposit or earnest money, it is considered forfeiture. This occurs when the buyer decides not to proceed with the transaction and, according to the terms of the purchase agreement, forfeits the deposit. The deposit is typically intended to show the seller that the buyer is serious about the transaction. In the event of a failure to complete the transaction without a valid reason specified in the contract, the seller is entitled to keep this deposit as compensation for the lost opportunity to sell the property.

Forfeiture is a legal term that indicates the loss of a right or privilege as a consequence of failure to meet an obligation. In this context, it means that the buyer loses their right to the deposit due to non-compliance with the terms of the agreement.

Understanding the implications of a good faith deposit helps buyers and sellers navigate the contract process effectively. It reinforces the importance of clearly understanding the terms of the agreement and the consequences of actions taken during the negotiation and closing processes.