When a real estate transaction falls apart, there’s almost always one question that follows immediately: what happens to the deposit? The earnest money deposit is sitting in escrow and both parties want it. Understanding who’s entitled to it, how Florida law handles disputes, and what the actual process looks like is something every buyer and seller should know before they sign a contract.
This post covers the mechanics of escrow deposits in Florida — what protects you, what puts you at risk, and what happens when two parties can’t agree on who gets the money.
The earnest money deposit — EMD — is the buyer’s good-faith deposit that goes into escrow when a contract is executed. It signals to the seller that the buyer is serious and provides the seller with some financial protection if the buyer defaults without cause.
In Central Florida, typical EMD amounts run 1–3% of the purchase price on a financed offer and 5–10% on a cash offer. The deposit is held by the escrow agent — usually the title company or closing attorney — in a dedicated escrow account. At a successful closing, it applies toward the buyer’s purchase costs.
The EMD is not automatically forfeited just because a deal falls through. Whether the buyer gets it back or the seller keeps it depends entirely on why the deal failed and what the contract says.
The Florida As-Is Residential Contract gives buyers a defined inspection period — typically 7 to 10 days from the effective date of the contract, though the length is negotiated. During this window, the buyer can cancel for virtually any reason and receive a full refund of their deposit. The buyer doesn’t have to justify the cancellation. They simply need to provide proper written notice to the seller before the inspection period expires. If the deadline passes without cancellation, this protection is gone.
If the contract includes a financing contingency and the buyer is unable to obtain a mortgage after a genuine good-faith effort, they are generally entitled to cancel and recover their deposit. The key word is good-faith — a buyer who didn’t actually apply, or who deliberately tanked their application, may not be protected. The specifics depend on how the contingency is written and what the buyer can document about their loan efforts.
If the seller fails to close, fails to make agreed-upon repairs, or materially misrepresented the property, the buyer has grounds to cancel and recover their deposit. Depending on the circumstances, the buyer may also have claims for additional damages beyond just the deposit — but that’s a conversation for a real estate attorney.
If the appraisal comes in below the purchase price and the buyer cannot or will not cover the gap, the financing contingency typically protects the buyer’s deposit. Whether the buyer can cancel cleanly depends on how the appraisal and financing contingencies are written in the specific contract.
Once the inspection period has expired and no other contingencies apply, a buyer who simply changes their mind about the purchase is in breach of contract. The seller has a valid claim to the deposit as liquidated damages. This is the most common scenario where a buyer legitimately loses their EMD — they waited too long to cancel, had second thoughts, and had no contractual protection remaining.
If a buyer simply doesn’t show up to closing, fails to fund, or refuses to proceed without a valid contractual reason, the seller can claim the deposit. Under the Florida As-Is contract, the deposit typically serves as the seller’s liquidated damages — meaning the seller gets the deposit but generally cannot sue for additional damages beyond it, unless the contract specifies otherwise.
This is the part most explanations skip over. When a deal falls apart and both parties claim the deposit, the escrow agent cannot simply release the funds to one side — they are legally prohibited from doing so without either a written mutual agreement or a court order. The money stays frozen in escrow until the dispute is resolved.
Under Florida law, if the escrow agent is a licensed real estate broker, they have specific obligations: they must notify the Florida Real Estate Commission (FREC) within 15 business days of the dispute and attempt to resolve it through one of the approved methods. Those methods are:
The practical reality: most deposit disputes involving relatively small amounts (under $5,000–$10,000) get resolved through negotiation between the agents and attorneys before any formal process is needed. The cost of litigation often exceeds what either party stands to gain. Disputes over larger deposits in more complex transactions are more likely to go through formal channels.
Have questions about how deposits work in a specific transaction, or dealing with a situation where a deal has fallen through? Reach out. I can help you understand your position and connect you with the right resources if legal counsel is needed.
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