Washington State Real Estate Practice Exam

Is earnest money typically refundable to the buyer if the deal falls through?

1. Yes, it is always refundable

2. No, it is never refundable

3. It depends on the contract terms

4. Only if the buyer withdraws within 24 hours

The correct answer is: It depends on the contract terms

Earnest money is an important component of a real estate transaction, and whether it is refundable to the buyer if the deal falls through primarily depends on the terms outlined in the purchase and sale agreement. Typically, the contract specifies conditions under which the earnest money can be recovered by the buyer, such as inspections, financing contingencies, or other predefined circumstances that may allow the buyer to back out of the deal without penalty. If these contractual conditions are met, the buyer is generally entitled to a refund of the earnest money. However, if the buyer fails to comply with the contract's stipulations or if they withdraw for reasons not covered in the agreement, the earnest money could be forfeited to the seller. By understanding that earnest money's refundability is contingent upon the specific terms within the contract, it is clear why the response that it "depends on the contract terms" is the correct one. This highlights the importance of thoroughly reviewing contractual agreements in real estate transactions.