What exactly is earnest money? Will I get it back if something happens and we don’t close on the house?
Earnest money is a very much misunderstood part of the purchase agreement when you make an offer on a home. And actually it’s really quite simple. When you make an offer on a home you want the seller to take you seriously. You want him to know that you’ve thought this through and you’re serious about buying this home. A purchase agreement is a commitment to buy a home. The earnest money check is your show of good faith that you fully intend to move forward and buy the house. 
The purchase agreement is structured in such a way that you as the buyer are protected in many ways when you buy a home in Iowa City. The one thing that is not covered is you changing your mind. You don’t get to have “Buyer’s Remorse.” If you do that, then your earnest money check is disbursed to the seller.
Does that mean you must buy the house come what may? Not at all. The purchase agreement also contains a few contingencies that allow you to gracefully walk away from a deal in certain circumstances. One of these contingencies is that you obtain financing. If something happens and you are unable to obtain financing, then you will be able to cancel the contract and get your earnest money back. If for instance the house doesn’t appraise for the purchase price. If you lose your job prior to closing or something else happens to affect your ability to finance the home… You get the picture. Those kinds of things don’t come up that often. What does sometimes happen is that the contingency for inspections cannot be met. If repairs come up at the inspections and buyer and seller are unable to come to an agreement on who will take care of them, then you as the buyer have the option to cancel the contract. And once again the earnest money will be returned to you. Just to make it perfectly clear. If you are unable to buy the house, because contingencies cannot be met, then you can walk away – And your earnest money will be returned to you.
So that’s how it works. Now a little background info on how much and what exactly happens to the check. Here in Iowa City it’s typical to include an earnest money check for $500 with a purchase agreement for homes under or around $150,000. For mid range homes of around $200,000 earnest money is typically $1000. What happens is that the check is deposited into the trust account of the listing brokerage and that’s where it stays until closing where it shows up on your side of the HUD1 Settlement Statement. Or to put it another way, you get it back at closing and it is applied to the purchase of the home.
