arm wrestle over money

How can you get your earnest money back if you back out of a home sale in Oregon?

In Home buying, Portland Market Update, Portland Oregon Real Estate, Portland Real Estate, Portland Real Estate News by Juli

Let’s kick off this post with an explanation of what earnest money is. Earnest money is a deposit made to a seller showing the buyer’s good faith or “earnest” intention to complete the purchase of the property. Earnest money is typically held in escrow at a title company pending the continuation of the sale, and it is typically, but not always, refundable to the buyer. If the buyer completes the purchase, the earnest money is paid to the seller as part of the purchase price.


Earnest money is an incentive to the seller to keep the property off the market and not entertain offers from other potential buyers while the buyer investigates the property and secures financing. The seller will expect to receive the earnest money if the buyer backs out of the sale for any reason that has not been specifically agreed to in writing in the sale agreement.

There are no rules or official guidelines about how much earnest money must be deposited. There can be no earnest money included in a transaction which is might be the case in a sale or transfer of property between close friends or family members. The earnest money doesn’t even have to be money. It can be personal property, like a car or a boat, or another piece of real estate or virtually anything the parties agree to include. That said, in the vast majority of transactions in Oregon, sellers will expect to see an earnest money deposit of approximately 1% of the sale price.

So what happens if something goes wrong after you’ve deposited the earnest money and you want to get it back. Unless you’ve agreed in writing to make the earnest money non-refundable and release it to the seller, a buyer in Oregon will usually be able to receive back some or all of the earnest money.

Non-refundable earnest money is released by the title company to the seller upon written instructions from the buyer, and once it’s in the seller’s possession, it will likely require some complicated legal maneuvering to recover it if that can be managed at all.

Assuming your earnest money is refundable and is still held in escrow by the title company, in a usual transaction, you will receive it back if you cancel the sale based upon inspection results or failure of financing (you as the borrower or the property fails appraisal because of condition or value), assuming your sale agreement Is subject to inspection and financing provisions which are standard provisions in Oregon real estate forms.

If you have already waived all the provisions that would enable you to terminate the sale without consequence and/or you fail to complete the purchase on time for any reason, the seller will feel entitled to receive the earnest money because of your failure to perform as you had agreed, and the seller may be entitled to it. Although often misunderstood by sellers, and sometimes their Realtors, the seller has no right to earnest money other than as specified in the sale agreement. There is no general rule that the seller gets the earnest money if the buyer doesn’t perform as agreed, but the seller will often believe they are entitled to it.


At the point of termination, you, as the buyer, can relinquish some or all of the earnest money to seller or dispute its release and try to get some or all of it back. Because most earnest money is held in escrow where it cannot be released without separate written and signed instructions from both parties, most earnest money disputes are resolved by one side or the other giving up or the parties reach a compromise in or out of small claims court. The sale forms used in Oregon specify that disputes under the $5000 limit are referred to small claims court and most other disputes are referred to mediation and/or arbitration.

To give you a sense of scale, this kind of earnest money situation typically happens only in unusual and unexpected circumstancesm and is rare. A buyer might back out of a sale at the last minute because of extreme anxiety, a sudden and unexpected change in their employment or the economy, sudden illness or an unforeseen change in the family (divorce, birth or death). The best advice is to have a savvy, professional Realtor advise you and protect your interests to to make sure you read and understand the sale agreement contracts and their implications.*

*This article was originally published on on January 18,2017