Earnest Money & Contingencies Explained (Michigan)

Earnest money is the good-faith deposit that goes with your offer to show the seller you're serious. It isn't a separate cost on top of your purchase, it gets credited toward your down payment or closing costs when you close. Michigan doesn't legally require earnest money, but on the lakeshore it's expected with nearly every offer. Most of my buyers put down 1% to 3% of the purchase price, though I've seen everything from a few hundred dollars on a modest cottage to much larger deposits when we're competing for a tight listing. The amount is negotiable, and I help you size it to be competitive without overexposing your cash before we know the home checks out.

Your deposit doesn't go to the seller. It goes into an escrow or trust account held by a neutral third party, usually the listing brokerage or the title company, where it sits untouched until closing. In Michigan, the broker is required to deposit accepted earnest money into that escrow account within two banking days. Because of my title and abstracting background, I pay close attention to how this is worded in the purchase agreement, who holds the funds and under what terms, because that's exactly the language that decides how easily you get your money back if the deal unwinds. At closing the deposit is simply applied to what you owe, so it works for you the whole way through.

Contingencies are the conditions written into your offer that have to be satisfied before you're locked in. Think of them as off-ramps that protect both you and your deposit. The main ones in a Michigan purchase agreement are inspection, financing, appraisal, and clear title. Each one says, in effect, if this specific thing doesn't work out, I can renegotiate or walk away and get my earnest money back. The general rule is simple but unforgiving: if you cancel for a reason covered by a valid contingency and you follow the deadlines and notice rules, your deposit is refundable. Cancel for a reason that isn't protected, and that money is at risk. I build every offer around the contingencies that actually fit your situation.

The inspection contingency gives you a defined window to have the home professionally inspected and then decide what to do with what you learn. Within that period you can ask the seller to make repairs, request a credit, renegotiate the price, or cancel the deal entirely and recover your earnest money. Once the window closes or you waive it, that protection is gone. As a licensed appraiser, I walk the home with a trained eye before you ever spend money on an inspection, so we go in knowing roughly what to expect. When the report comes back, I can usually tell you which items are real negotiating leverage and which are simply normal wear for a home of that age on the lakeshore.

The financing contingency lets you cancel and recover your deposit if your mortgage falls through despite a genuine, good-faith effort to get approved. It's one of the most important protections a financed buyer has, because it covers the scenario where the loan you expected doesn't come together within the agreed timeframe. The catch is the good-faith part: if your loan dies because you changed jobs, opened new credit, or simply missed the financing deadline, that's where buyers get into trouble and risk forfeiting earnest money. This is why I tell every buyer to get fully underwritten before we write, and to make zero changes to your finances once we're under contract. It keeps the contingency strong and your deposit safe.

The appraisal contingency protects you when the lender's appraised value comes in below your agreed price. Lenders only finance against the appraised value, so a low appraisal can leave a gap between what the home is worth on paper and what you've agreed to pay. With this contingency, if you and the seller can't reach a new agreement, you can typically cancel and get your earnest money back. Because I'm a licensed appraiser, I value pricing carefully before we offer, which means we're rarely caught off guard. If an appraisal does come in short, I'm comfortable challenging it with comparable sales when the number doesn't reflect the real market here on the lakeshore.

Sometimes a tighter offer is the right move, but waiving protections is never something I let a buyer do casually. Writing an offer as-is, with no inspection contingency, means you cannot back out over what an inspection finds without forfeiting your deposit. Waiving financing or appraisal carries the same exposure if the loan or the value comes up short. In multiple-offer situations on the lakeshore I'd rather strengthen your offer in ways that don't gut your safety net, a larger earnest deposit, a shorter inspection window, a flexible closing date, or appraisal gap coverage. I'll always lay out exactly what you're giving up before you give it up, so the decision is informed and never a surprise.

Appraisal gap coverage is a clause that says you'll cover a set amount above the appraised value if the appraisal comes in low, rather than walking away. For example, if you offer on a home and agree to cover up to a certain dollar amount of any shortfall, and the appraisal lands within that amount, you make up the difference in cash at closing. It reassures a seller that a low appraisal won't blow up the deal, which makes your offer compete with stronger buyers, without forcing you to waive the appraisal contingency entirely. The key is that you only commit to a gap you can actually cover in cash. I help you set that cap deliberately so you stay competitive and never stretch past your reserves.

If a deal falls apart and you and the seller don't agree on who is owed the deposit, the escrow holder can't simply hand it to whoever asks first. In Michigan the escrow agent is a neutral party and generally can't release the funds without a mutual release signed by both sides or a court order. If neither side will sign, the broker can ask a court to decide through a process called interpleader. The honest takeaway: disputes are far easier to avoid than to resolve. That's why I write clear contingencies, track every deadline, and document your notices in writing, because a clean paper trail is what gets your earnest money back without a fight. My title background means I take that recordkeeping seriously from day one.