Once a handshake is made in a property transaction, one of the first topics is the earnest money. So what is earnest money (deposit) and what happens if one party backs out? This article explains it, how it differs from a forfeit deposit, and the possible legal outcomes.
What Is Earnest Money?
Earnest money is an advance payment that shows the seriousness of the agreement between buyer and seller and strengthens the promise of sale. Under Turkish law it is treated as a binding deposit. Paid when the parties sign, it acts as assurance that the sale will go through.
Earnest Deposit vs. Forfeit Deposit
Although often confused, a binding (earnest) deposit and a forfeit deposit are legally different. A binding deposit proves the contract was formed and is normally deducted from the sale price. A forfeit deposit grants the parties the right to withdraw; the party who backs out exits the deal by losing the amount paid or received.
If the Buyer Backs Out
If the amount is a binding deposit and the buyer withdraws without valid cause, as a rule they cannot reclaim it; the deposit stays with the seller. However, if the seller is at fault or an unexpected obstacle appears on the title, the buyer’s rights are assessed differently.
If the Seller Backs Out
If the seller withdraws, they are expected to return the deposit received. If agreed as a forfeit deposit, they may have to pay double the amount received. In every case, the wording of the written contract is decisive.
Tips for a Safe Deposit Payment
Always pay the deposit under a written contract and via bank transfer with a receipt. State clearly in the contract whether it is a binding or a forfeit deposit. Check the title record, encumbrances, and that the seller is the true owner beforehand. Avoid cash, undocumented payments.
For safe transactions and title procedures, Armet Emlak & Harita is here for you: (0242) 417 72 72 · armetinsaatemlakharita.com