What happens to earnest money if the transaction falls through due to a buyer's fault?

When a transaction falls through due to the buyer's fault, the earnest money is typically forfeited to the seller. This is because earnest money serves as a form of assurance for the seller that the buyer is serious about the purchase. If the buyer fails to fulfill their obligations as stipulated in the purchase agreement, such as failing to obtain financing or not following through with the purchase without a valid reason, the seller is entitled to retain the earnest money. This forfeiture acts as a compensation for the seller’s time and potential loss of other buyers during the period that the property was under offer.

In contrast, if the transaction fails due to circumstances beyond the buyer's control, such as issues with the title or inspections that were not foreseeable, different rules might apply, potentially allowing the buyer to recover their earnest money. Thus, the retention of the earnest money by the seller in scenarios where the buyer is at fault underscores the importance of communication and adherence to contract terms in real estate transactions.