Putting up earnest money to make home purchase go easier? Make sure you follow these steps to protect it

Attaching a check to the offer on a house you hope to purchase is the right way to signal your intentions to the seller. The larger the check, the more serious the buyer.

But putting up earnest money is not without risk. If you don’t abide by the contract you and the seller sign, you could end up forfeiting the entire amount.

Margaret Goss, an agent in Winnetka, Illinois, has had only one client lose their earnest money, but it was a doozy. Goss commented — on an ActiveRain article on the topic written by Massachusetts agent Bill Gassett of RE/MAX Executive Realty —that when closing day came for this client, they backed out.

The reason? “The market was changing and they felt they had paid too much,” said Goss. “They lost a bundle.”

More on that in a moment. First, some basics. Earnest money isn’t the same as a down payment. A down payment is the amount lenders require borrowers to put into the transactions up-front so that the bank can feel secure in financing the balance of the home’s cost.

In other words, if you bring, say, 10% of the purchase price to the closing table, the lender will hand over the other 90%

. In contrast, earnest money is a sign of good faith to the seller. It tells the seller you intend to move forward. It can range from as little as $500 in some markets to several thousand in others, and usually increases when competition for houses is strong.

Your earnest money can be rolled into the down payment when you sit down at closing — but it also can be lost if you fail to reach that point. You have to follow the letter of the contract. And timing is everything — especially when it comes to any contingencies written into the document.

Contingency clauses protect both buyer and seller. But the more contingencies, the greater the possibility of the deal falling through. So in competitive markets where houses are flying off the proverbial shelves, some buyers are forgoing home inspections and other protections in order to present sellers as clean a deal as possible.

It always behooves buyers to protect themselves against unforeseen circumstances, but contingencies can cause trouble if you run out of time. Most real estate contracts include timelines that must be adhered to by both buyer and seller.

Take the home inspection clause, for example. Usually, the number of days you have to order the inspection and receive a complete report of the findings is agreed to by both parties and written into the contract. If the inspector finds defects you don’t want to deal with, you can back out of the purchase and your earnest money will be returned.

Here, advises Gassett in his ActiveRain post, you should notify the seller that you want out, in writing, prior to the expiration of the inspection contingency. If you miss the deadline, either because the inspection wasn’t completed in time or because you failed to notify the seller that you are no longer interested, the seller can keep your deposit.

The same holds true for the mortgage contingency. Cash buyers don’t have to worry about this, but most people need financing, so they write into the contract how many days they have to secure a loan.

Sometimes, a maximum interest rate is also specified. That’s one reason smart buyers get themselves preapproved by a lender — not just prequalified, but preapproved for a loan up to a certain amount. Then, when they find a place they want, they can move quickly. But again, if you miss the deadline — or fail to tell the seller in writing that you are unable to secure a loan — you can lose your deposit.

The seller can grant a mortgage extension if you want to keep hunting for a lender, but Gassett suggests getting that permission in writing.

Another contingency to keep in mind involves the appraisal. This protection allows you to walk away if the selling price turns out to be more than what the appraiser says the property is worth. Like the others, this contingency comes with a timeline.

If, during the post-contract, pre-closing period, you simply change your mind about the house, you can sometimes use one of the above contingencies to back out of the deal. If the seller is holding backup contracts just in case your deal falls through, or if other buyers are knocking on their door, they will probably let you skate. But if you can’t demonstrate a good reason for changing your mind, they could hang on to your earnest money.

After all, they’ve probably taken the house off the market and missed showing the place to other interested parties. Now the lawyers become involved, and that could tie up your money for months — money that you might need to put up for another house. So read your contract closely and follow it carefully.

One last word on earnest money, which also applies to deposits on new-build homes: Make certain the money is held in a dedicated escrow account. Some financially strapped homebuilders have mingled customers’ deposits with their own operating funds — and when the businesses went under, the money was gone.

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.

Alec Nowers wants Uber to refund his $100 credit, but the company won’t help him. Can he get his money back?

I have an account with Uber. Earlier this year, I added my granddaughter to my account so she could have easy travel to my house in Mercer Island, Wash., from the University of Washington in Seattle.

I added her successfully, but when she tried to access the account, Uber said there was

“not enough money” in the account for her to use the service. I was puzzled because Uber had my credit card on record. There was never a question of having money in the account. But I dutifully added $100 to the account.

However, Uber still denied their service to my granddaughter.

So I opened a Lyft account, which solved the problem. My granddaughter can now use that account for rides.

Meanwhile, I wanted the $100 back from Uber. I have emailed and called the company repeatedly, but no joy. On the last call I made, a representative told me the problem had to be handled by the accounts department and that they would call me back. No one called back.

I just want to get my $100 back. Can you help?

Uber should have allowed your daughter to use your account. Uber offers a Family Profile, where you can add anyone, as long as they’re at least 18 years old and have an Uber account. When your daughter tried to hail an Uber, it should have worked.

Why did an Uber representative recommend adding money to your account? Why not just help you add your credit card to your granddaughter’s profile? I asked Uber to clarify what happened to you, but it did not respond.

Uber’s customer service department is highly automated, and if I had to guess, I’d say you were dealing with an AI chatbot instead of a real person. And if you’ve ever spent any amount of time talking to a chatbot, then you know they are heavy on the “artificial” and light on the “intelligence.”

I like your solution, which was switching to Lyft. In a perfect world, you would switch to a competitor when a company gives you substandard service. But in a world where businesses are consolidating quickly — and that’s particularly true for airlines — your strategy is not always possible.

Here’s another thing you could have done: I publish the names, email addresses and phone numbers of the Uber company executives on my consumer advocacy site, Elliott.org. You could have emailed one of them and hopefully resolved this problem quickly.

Why couldn’t Uber just send your credit back as cash? Because it considers the credit a gift card, and gift card credits are not refundable, returnable, or redeemable for cash “except where required by law,” according to Uber. And under Washington State law, Uber doesn’t have to refund your gift card (it should, but that’s a topic for another time). So once you give Uber your cash, it’s theirs.

You reached out to my advocacy team for help. I contacted Uber on your behalf, and it refunded the $100 credit.

Uber is a thorn in our readers’ side, generating more than its fair share of cases. But this one was a little more complex than usual and required a little extra time to resolve. As a side note, my team never knows if Uber will respond to our requests for help. Yes, it’s that big — and impersonal. This story was researched, written and factchecked by Christopher Elliott, edited by Andy Smith and his team and illustrated by Dustin Elliott.

Copyright 2023 Elliott Report