Can I get my Earnest Money Back? Can I keep Earnest Money?

Earnest Money, as used in most Illinois Real Estate deals, is the source of much confusion among home buyers and sellers. What does it really mean and more importantly,, what can cause a buyer to lose it? Sellers also need to know under what circumstances can they keep a buyer’s earnest money.

Understanding Earnest Money in Illinois

Earnest money is a certain sum, negotiated by the realtors at the outset, that a buyer will deposit upfront to show that they are ‘serious’- nevermind the fact that they are also placing their name on a legal contract with its own set of obligations. The earnest money is usually held by the seller’s real estate agent and this deposit works as a credit to the buyer at the time of closing. It really doesn't impact the seller very much at all, but usually the more money that a buyer has to deposit can be seen as a sign of financial strength- which is something that sellers like to see from a potential buyer. Typically, the higher the price of the home, the more earnest money is required although there is no set formula in determining how much earnest money to put down.

   Every time that a new real estate contract is formed, the expectation is that it will result in a closed deal- the buyer buys and the seller sells. Everyone is happy. While this is usually the case, sometimes things fall apart and the two parties to the deal never end up at the closing table together. This is when people start asking questions about earnest money.

How Earnest Money can be Put at Risk

  How earnest money “works” is dictated by the term so the contract. For purposes of illustration, this article discusses how earnest money works most of the time under most real estate contracts that are used in the Chicago area. Your contract may be different which is why it is very important to have a real estate lawyer who is familiar with your particular circumstances and the information below might not apply specifically to you. In general then, unless it is otherwise specified in your contract, or the terms of the contract are changed in “attorney review”, earnest money is not meant to be used as “liquidated damages”. This means that if someone is in violation of the contract, the earnest money is not automatically meant to be the only means available of compensating the other side. For example- if the buyer to a real estate contract has no legally valid excuse and simply changes their mind, the seller might be “out” for a lot more than the amount of the earnest money- and they may have the right to sue for whatever that amount of damages is. That being said, keep in mind that lawsuits are very expensive and it might not be cost effective to actually sue, but that is another topic for another day. Buyers and sellers might then agree that if the buyer unjustifiably backs out that the seller will just keep the earnest money. That is what is known as liquidated damages.

So when is it okay for a buyer to back out and get their earnest money back?

  What is a legally valid excuse? That is defined by the contract and the only way to know for sure what is a legally valid excuse under your contract, is to refer to the actual contract that you both signed. Your real estate lawyer should be helping you to interpret this. The most common ways for a buyer to lose their earnest money, using the most commonly used contracts in Chicago and its suburbs- is as follows:

Changing Your Mind Beyond a Certain Point Can Jeopardize Earnest Money

  Buyers changing their mind. If this happens very early on, especially within the first five days - it could be okay. This is why we have attorney review periods whereby either side can back out and earnest money is protected. But once buyers and sellers have “finalized” suggested changes to the contract (this is called “attorney review”), it could be too late for a buyer to just change their mind and there is little to nothing that their lawyer or realtor can do about it without putting at the very least, the earnest money at risk.

Life Circumstances that Cause A Buyer to No Longer Need the House Can Jeopardize Earnest Money

  Circumstances. Similar to changing their mind, sometimes an unexpected circumstance like a job transfer will cause a buyer to not need the house anymore that they are under contract to buy. This is a real risk and if the mortgage is approved or could still be approved, this could be a “breach” of the contract and the earnest money is at risk if the seller decides to push the issue.  Sometimes, as in the case of an unexpected life change, the sellers will be nice about it and simply release the buyer from the contract. Or not. Entering into a contract to buy or sell a house should be taken seriously and not done unless you are sure, because it sets you on a path that you might not be able to get out of without risking your money or worse, a lawsuit.

Hiring a Bad Lawyer for your Real Estate Closing can Jeopardize  Earnest Money

  Hiring a bad lawyer or a lawyer who does not understand Illinois Real Estate. In most contracts, buyers have certain obligations that MUST be met within specified time frames as related to getting their mortgage committed to by a bank. They are then allowed to back out and get their earnest money back if they can’t qualify for a certain type of mortgage. But if these very strict deadlines are not either met OR the buyer’s lawyer does not let the seller’s attorney know about it, using the right language at exactly the right time, the earnest money can be lost. It is a buyer’s job to cooperate with their lender and move things along, but it is the buyer’s lawyer’s job to keep track of these deadlines and legally protect their buyers in case the bank does not meet these deadlines. If deadlines are “blown” but the deal ultimately closes, the earnest money does not matter but a good lawyer will never risk it and will make sure that your earnest money is protected if you cannot get a mortgage.

If a Buyer cancels the Contract due to Inspection Issues, the Earnest Money Should be Safe


Most contracts will allow a buyer to back out if they don’t like what was revealed at the property inspection or if they cannot successfully negotiate these items with the seller. As long as the buyer’s attorney uses the right language at the right time, a buyer can get their earnest money back if there is a problem on the home inspection.


As should be clear by now, earnest money is for the most part controlled by the terms of your real estate contract. Your attorney’s job is to be very familiar with the contract that you are using and to make sure that you are protected so that you will not need to worry about losing your earnest money.  At the same time, if there is any change in your circumstances or you are not sure about something related to your contract to buy or sell real estate, you need to discuss this with your lawyer immediately. Real estate law in Illinois is very time sensitive and often times- a buyer being able to get their earnest money back is a matter of timing, communication, and good lawyering. If you are about to enter into a real estate contract in Illinois and want to know your rights as to earnest money, or are about to back out, give us a call at 630 250-8813. Don’t wait as these matters are very time sensitive.

Carol O'Connor Cadiz
Connect with me
Attorney & Owner at O'Connor Cadiz Law: Injury & Accidents, Disability Insurance.