Earnest Money FAQs Under the GAR Contract

In this article, I walk through the most common questions buyers, sellers, and agents ask about Earnest Money. Some are answered directly by the contract. Some are not. Each are critical to understanding risks, rights, and consequences.

Below are a few of the issues that create the most confusion — and the most liability.

Is Earnest Money required for a contract to be valid?

No.

In Georgia (and across the U.S.), the core requirements for a valid contract are offer, acceptance, and consideration — meaning each party must exchange something of value to support the promises in the agreement. While money is the most common form of consideration in real estate contracts, the law recognizes that consideration can take many forms, like mutual promises, and a contract can be enforceable even if the agreed-upon earnest money amount is $0.

What is the right amount of Earnest Money?

Under the GAR Purchase and Sale Agreement, if the Buyer defaults and the Seller elects to terminate, the Seller’s sole remedy is retention of the Earnest Money as liquidated damages. The Seller expressly waives the right to sue for specific performance or additional damages.

What is the Seller being compensated for?

• Time off market

• Stigma from a failed contract

• Carrying costs (mortgage, taxes, insurance, HOA)

• Lost backup buyers

• Market shifts during the delay

• Additional marketing costs

• Emotional and logistical disruption

What else should the Seller consider?

The Earnest Money should be an amount that would be reasonably expected to hold a Buyer into a deal by making them think twice before defaulting. That means that the Earnest Money amount may not be as closely related to the Purchase Price as many think. The amount that would hold a first time homebuyer making a limited downpayment to a $300,000 purchase is different than the amount that would hold in an investor or a parent buying for a child who is putting down all or a significant amount of cash for the same property.

What should the Buyer consider?

A significant Earnest Money amount is a way to make an offer stand out without costing the Buyer more money as long as they fulfill all of their obligations in the contract. It communicates that the Buyer is serious.

Does the Holder earn interest on the Earnest Money?

Probably.

The F201 says that the Holder is permitted to retain the interest if the account is interest bearing. This fulfills the requirement of Georgia License Law that requires an agreement as to who get the interest before the money is deposited.

When the Closing Attorney is the Holder, they do not retain the interest. Attorney escrow accounts in Georgia, and in many other states, are IOLTA accounts - Interest on Lawyer Trust Accounts. Any interest earned by the account is paid to the State of Georgia and is used to fund legal aid programs.

Can the Buyer write a personal check for Earnest Money?

Maybe.

The Holder gets to decide the manner of the Earnest Money, whether it is the Broker or the Closing Attorney.

Why might a Holder refuse to accept personal checks?

They may refuse for the obvious reasons:

• The check is more likely to be fraudulent that other forms of payment.

• The Holder is charged if the payment is dishonored.

• The Holder spends uncompensated staff time dealing with payment issues.

Why might a personal check be a bad deal for the Buyer?

If the Buyer terminates early on, the Holder may not be willing to immediately refund the money. They are not yet certain that the funds are received and will not come back dishonored. The GAR Purchase and Sale Agreement says the Holder will not pay out the Earnest Money until the Holder has confirmed that the payment to them has cleared.

Who is responsible for Making Sure the Earnest Money is Delivered?

Both Agents Should Confirm.

The Buyer's Broker should verify their client is not defaulting on the contract. The Seller's Broker should make sure that their client's only remedy has been received by the Holder. This is particularly true when the Holder is the Closing Attorney since the attorney's staff have not yet actively begun work on the file at the point when the Earnest Money is due.

What happens if the Earnest Money is not delivered on time?

What normally happens:

The Agents on the Buyer and Seller sides shoot emails and texts back and forth. It usually gets resolved at some point or the Buyer terminates under Due Diligence in the meantime and the issue is no longer relevant.

What the GAR contract says will happen:

• The Holder gives Notice (in writing, signed by the Holder, delivered to the email addresses listed in the contract for accepting Notice) to the Parties (Buyer and Seller side) that the Earnest Money is not received.

• The Buyer has 3 Banking Days to cure their default. Banking Days is defined in GAR contracts Section C. Definitions.

• If the Buyer does not cure, the Seller has the right to terminate. The Seller can also sue the Buyer for the amount of the Earnest Money not delivered.

• If the Seller does not terminate within the 7 Days, the Seller has waived the right to terminate. They need to understand that they are now in a contract for which they have NO REMEDY if the Buyer does not close. Their right to sue for the Earnest Money says that they only have that right if they have not waived it. They waived it by not acting within the 7 Days.

What happens if the Earnest Money payment is dishonored / bounces?

What actually happens and what the contract said should happen are the same as when it is not delivered - Notice, cure, termination, waiver of right to terminate.

If the Buyer and Seller cannot agree about who gets the Earnest Money, what happens?

• The Holder should determine whether they can make a reasonable interpretation of the contract to decide who should receive the Earnest Money. Reasons that the Holder may be unable to make a reasonable interpretation:

  
  

  • The transaction is cash and the Holder is the Closing Attorney. Because of the requirements of the GA Bar Association, the Closing Attorney must have a client in the transaction. If there is no lender, the contract says that the Buyer is the client, although we have significantly limited this representation in the GAR forms. This makes it impossible for the Attorney to make an impartial legal determination.

    
    

  • There is an issue of fact that the Holder cannot resolve, most commonly the physical condition of the property. The Holder has never been to the property.

    
    

• If the Holder can make a reasonable interpretation, they should do so.

  
  

  • They send Notice to all parties with their decision and the GAR forms give the Buyer and Seller 10 Days to object to the intended disbursement.

  • If the Holder receives a response that changes their decision, they send out a new Notice with the new decision. The Buyer and Seller get 10 Days to object to this Notice.

  • They continue this process until 10 Days pass without the Holder receiving anything that changes their decision.

  • The Holder sends Notice to confirm their disbursement.

    
    

• Things that may affect the reasonable interpretation:

  
  

  • Was there an enforceable contract? Are all of the necessary requirements met - legal description, financing terms for a contract with a financing contingency, legal signatures, etc.

  • Were deadlines met - to make a repair, the close, etc.?

  • Were Notices and other required documentation sent timely and properly.?

    
    

• If the Holder cannot make a reasonable interpretation and the parties cannot agree, what happens?

  
  

  • The Holder may prefer to give the parties more time to try to work it out.

  • Although there is no time limit for the Holder to make a decision, at some point the only resolution is to interplead the funds.

  • Interpleader is the court process for the Holder to file a legal action and deposit the Earnest Money with the court. The contract parties would then resolve their dispute between themselves and the court. The Holder will file an action or pay an attorney to file it. The attorney filing the interpleader and the Holder are authorized under the GAR forms to deduct their costs and fees from the Earnest Money before it is paid to the court.

What can you do if the Holder will not act?

This is a hard one. Again, there is no time deadline for the Holder to make a decision. The delay or refusal to act is longest and happens most often when the Closing Attorney is the Holder. They do not have a client in dispute that they have a duty to. They are not being paid for resolving the Earnest Money or for any of the work they did for the closing that is cancelled. They do not want to make a decision that will displease an Agent so they avoid making any decision at all.

Options, such as they are:

• Most expensive: The Buyer or Seller who feels they are should receive the Earnest Money could hire an attorney. This may start with a demand letter and would hopefully get resolution without proceeding past that point. The issue is that hiring the attorney could cost as much or more than the amount of the Earnest Money they are seeking.

• Free but Not Quick: The Buyer or Seller who feels they are should receive the Earnest Money could file a bar complaint with the Georgia Bar Association.

• Free but Exhausting: Constant calls, emails and maybe some drop-in visits to the attorney's office to demand resolution. The more parties to the transaction who do this, the easier it is to wear the attorney down. Let them know you are going to contact them at least once a day until it is resolved. Emails should include snipped portions of the F511 and contract where they agreed to assume the responsibilities of the Holder and the duties of the Holder.

• Free and Not Always Possible: The Agent or Agents can let the attorney know they will never choose them as a Closing Attorney and will counter on any offer than includes their firm name, telling the offering agent exactly why they are doing it.

Preventing the Closing Attorney Holder Issue in the Future: Listing agents whose brokerages do hold Earnest Money have written into their Seller Brokerage Engagement Agreement that the Seller directs the Seller's Broker to include in the listing that the Seller prefers the Seller's Brokerage to hold the Earnest Money if the Buyer's Brokerage cannot hold Earnest Money.

Can the Holder decide to split the money between the Buyer and the Seller?

No. There is no reasonable interpretation of the contract that says that both sides get a portion of the money. Language was added to the Disbursement of Earnest Money explanation in Section B of the GAR Purchase and Sale to make it clear that this is not reasonable or allowed under the contract.

If the contract says the Buyer has the right to terminate but it does not say they get back a full refund of their Earnest Money, what happens?

If the Buyer has the right to terminate, they get their Earnest Money back. Some portions of the contract have not included that specific note, but the result is the same.

Agents who treat Earnest Money strategically are stronger negotiators, more effective risk managers, and far less likely to find themselves trapped in disputes without options. They understand that Earnest Money is a tool that allocates risk, signals credibility, and protects their client’s position if the transaction fails. Those agents ask better questions, draft cleaner terms, explain consequences more clearly, and spot problems before they escalate. The result is fewer surprises and a reputation for professionalism.

Stay Smart,

Cheryl Conner King

Founder & Instructor

REALsmart Real Estate School

Attorney | REALTOR® | CE Instructor

📍 Based in Georgia | Teaching Statewide