Buying real estate is not a risk-free process. If you want to be competitive with other potential buyers, you need to make a competitive offer and prove to the seller that you mean business. Standing out can be hard to do. Offering a significant amount of earnest money is one way that people try to stand out from others when buying real estate.
The issue with making aggressive offers that involve significant earnest money is that if the closing falls through, those funds could be at risk. The seller could try to retain them for your breach of the agreement. You can protect your earnest money by adding contingencies to an offer before you submit it to a seller.
How contingencies work
Your purchase offer becomes a binding contract when the seller accepts it. You need to follow through with the purchase unless there is a reason for you to cancel the transaction. If you have a contingency addressing your reason, that will give you grounds to cancel the purchase without penalties.
Contingencies are clauses that allow you or the seller to cancel the closing for a specific reason. There are contingencies for when appraisals come in low, when inspectors find defects and when buyers can sell their own home before closing.
Adding the right contingencies to your offer will protect you, but adding too many contingencies could make your offer less attractive to the seller. Learning more about how to protect yourself in a real estate transaction will mean that you have less at risk when you are buying property.
