Buying · 2 min read
Earnest Money, Appraisals, and Contract Contingencies
How earnest money, appraisals, and contingencies work—and why contract deadlines matter.
After your offer is accepted, earnest money, any required appraisal, and contract contingencies often shape what happens next. Read the purchase agreement carefully: your deposit and contingency rights depend on its terms and applicable law, while your lender determines valuation requirements.
1.What Is Earnest Money?
Earnest money is a deposit a buyer provides to demonstrate good faith when purchasing a home.
The purchase agreement specifies the deposit amount, payment deadline, and who will hold the funds. At closing, the deposit is generally credited toward the buyer's required funds.
If the transaction does not close, whether the earnest money is refundable depends on the purchase agreement, applicable contingencies, deadlines, and law.
Buyers should understand these terms before signing a purchase agreement.
2.What an appraisal does
Your lender determines whether an appraisal or an eligible valuation alternative is required. When an appraisal is required, a licensed or certified appraiser provides an independent opinion of the home's market value for the lender. Some eligible loans can use an alternative, such as Fannie Mae's value acceptance. Neither an appraisal nor a valuation alternative replaces an independent home inspection.
3.When the appraisal is lower than the price
A low appraisal may change how much the lender will lend. Depending on the contract, the options may include renegotiating the price, the buyer covering the difference in cash, asking for a reconsideration of value, or using an appraisal contingency if one applies. Review the choices with your agent and lender before the deadline.
4.Common contingencies
Inspection, financing, and appraisal contingencies make the purchase conditional on specific events. Each one usually comes with a deadline and a notice requirement. Waiving a contingency may strengthen an offer, but it can also increase your risk, including the risk of losing your earnest money.
5.Why deadlines matter
Missing a contract deadline can limit your options or affect your deposit. Put every date on a calendar, confirm who sends required notices, and keep agreed changes in writing.
Quick checklist
- Confirm who holds the earnest money and when it is due.
- Calendar each contingency deadline and notice requirement.
- Discuss low-appraisal options with your lender before signing.
Official references
General educational information only—not legal, tax, financial, lending or property-condition advice. Confirm current requirements with the relevant professional or program.