When Can a Seller Keep Your Deposit in a Connecticut Real Estate Deal?
If you’re buying a home in Connecticut, you’ll probably put down an earnest money deposit to show the seller you’re serious. But what happens if things don’t go as planned? Can the seller keep it? The answer depends on the details of your contract and whether you follow the deadlines and contingencies outlined in the agreement.
In this post, I’ll break down what happens to your deposit, when it’s protected, and when you could lose it in a Connecticut real estate deal.
What is an Earnest Money Deposit?
When you make an offer on a house, you usually include an earnest money deposit, typically around 1 to 3 percent of the purchase price. This deposit is held in an escrow account by the listing brokerage, the seller’s attorney, or another neutral third party until closing.
If everything goes smoothly, the deposit goes toward your down payment or closing costs. But if the deal falls apart, who gets the money depends on why the sale didn’t go through and what’s written in the contract.
When is Your Deposit Protected?
In Connecticut, your deposit is usually protected by contingencies written into your purchase agreement. These are basically conditions that must be met for the sale to move forward. If something goes wrong within these conditions, you can typically back out without losing your deposit.
1. Home Inspection Contingency
After your offer is accepted, you’ll have a set period of time, usually 7 to 14 days, to get a home inspection. If the inspection finds major problems, you can negotiate repairs, ask for a price reduction, or walk away from the deal.
If you cancel within the inspection deadline for a valid reason, you’ll get your deposit back.
If you miss the deadline or back out for something minor, your deposit could be at risk.
2. Mortgage Contingency
Most home buyers need a loan to purchase a house, which is why the contract often includes a mortgage contingency. This gives you time, typically 30 to 45 days, to secure financing.
If your mortgage is denied and you notify the seller within the time frame, you can get your deposit back.
If you miss the deadline or don’t follow the correct process, the seller may be able to keep the deposit.
3. Appraisal Contingency
Lenders require an appraisal to make sure the home is worth what you’re paying for it. If the appraisal comes in lower than the purchase price, you might have options like renegotiating with the seller or making up the difference in cash.
If the contract allows you to back out due to a low appraisal and you do so properly, your deposit is safe.
If you waived the appraisal contingency, you could have to pay the difference or risk losing your deposit.
4. Title Contingency
Before closing, a title company will check the property’s history to make sure there are no ownership disputes or unpaid debts tied to it.
If a title issue comes up that can’t be fixed, you can cancel the contract and get your deposit back.
When is Your Deposit at Risk?
Even with these protections, there are situations where the seller may be entitled to keep your deposit. This usually happens if you break the contract in a way that costs them time or money.
1. Backing Out for a Non-Contingency Reason
Once all contingencies have been satisfied, backing out means you could lose your deposit.
Example: You get cold feet two days before closing and decide you don’t want the house anymore. The seller is likely keeping the deposit.
2. Missing Contract Deadlines
Real estate contracts have strict deadlines, and missing them can cost you. If you don’t get financing approval or schedule an inspection on time, the seller may consider you in breach of contract.
Example: You were supposed to secure mortgage approval by a specific date but didn’t. The seller cancels the contract and keeps the deposit.
3. Not Closing on Time
Every contract has a closing date, and if you can’t close on time, the seller doesn’t have to wait for you.
Example: Your lender is running late, and you ask for more time, but the seller refuses. You might lose your deposit.
4. Trying to Cancel Over a Minor Issue
If you try to back out over something small that isn’t covered by a contingency, the seller has every right to keep the deposit.
Example: You decide you don’t like the backyard size, but the inspection report came back clean. You cancel, and the seller keeps the deposit.
What Happens if There’s a Dispute Over the Deposit?
Sometimes buyers and sellers disagree about who should get the deposit.
The escrow agent won’t release the money unless both sides agree or a court decides.
Many disputes are settled through negotiation, with the buyer and seller splitting the deposit.
If neither side budges, the case could go to court, which can take time and money.
How to Protect Your Deposit
Know the deadlines in your contract and don’t miss them.
Work with a real estate agent who keeps you on track.
Stay in close contact with your lender so financing stays on schedule.
If you have to cancel, do it for a reason covered by the contract.
Final Thoughts
Your earnest money deposit is a big part of the home buying process, and you don’t want to lose it over something avoidable. The best way to protect your deposit is to stay on top of your deadlines and understand your contract before signing.
If you’re buying a home here and need someone to guide you through the process, reach out. I’d be happy to help.