Earnest Money Deposits in Oregon Real Estate: What Buyers and Sellers Need to Know
In Oregon's competitive real estate market, earnest money disputes have become increasingly common. The average dispute now involves tens of thousands of dollars, and missed deadlines are the leading cause. Just last month, a Portland couple lost their $20,000 deposit after missing a contingency deadline by only two days. Stories like this are now a regular feature of Oregon's housing market.
In this post, I explain how Oregon homebuyers and sellers can protect themselves from becoming the next earnest money dispute. Understanding how Oregon law and standard real estate contracts treat earnest money deposits can be the difference between safeguarding your money and losing it overnight.
What Is an Earnest Money Deposit in Oregon
An earnest money deposit is a good-faith payment a buyer makes when submitting an offer on an Oregon property. Once the seller accepts, the money goes into escrow with a title company and stays there until closing, unless both parties agree in writing to release it earlier.
At closing, the deposit is applied to the purchase price. But if the deal collapses, whether the deposit is refunded depends on the contract terms, the deadlines, and the reason the deal fell apart.
The Standard Sale Agreements in Oregon
Most residential real estate transactions in Oregon use one of two standard forms:
- OREF Sale Agreement (Oregon Real Estate Forms, LLC): the long-established version, still widely used.
- Oregon Realtors Association Sale Agreement: introduced in 2021, largely similar to OREF but with updated formatting and some language changes.
For purposes of earnest money, both agreements impose essentially the same requirements.
Critical Oregon Earnest Money Deadlines
Deadlines matter more than anything else when it comes to protecting earnest money. Miss one, and you may forfeit your deposit.
Key Contingency Deadlines in Oregon Real Estate Deals
| Contingency | Typical Deadline |
|---|---|
| Inspection | 10 days |
| Financing | 21-30 days |
| Appraisal | 17 days |
| Title review | 5 days |
All deadlines typically run from contract acceptance. However, some newer contract versions may offer different options for the start date, so always confirm the exact language in your specific agreement.
If the Buyer Defaults in Oregon
When a buyer fails to close without a valid contingency, the seller's main remedy is usually to keep the earnest money as "liquidated damages." Oregon law requires this to be a reasonable estimate of potential losses, not a penalty. This is a key legal distinction. Oregon courts will not enforce liquidated damages if the amount is a penalty or is grossly disproportionate to the actual harm caused by the buyer's breach.
For example, if a buyer puts down $10,000 on a Portland home and then walks away a week before closing because of cold feet, the seller can usually keep that money and immediately relist the property. If the buyer refuses to sign cancellation papers, the deposit may sit in escrow for weeks, delaying resale and frustrating both parties.
If the Seller Defaults in Oregon
If the seller backs out without legal justification, the buyer has two primary options:
- Recover the earnest money deposit.
- Sue for specific performance, which is a court order requiring the seller to go through with the sale. Because Oregon real estate is considered unique, courts may order the sale rather than just awarding damages.
For instance, if a seller accepts a higher offer after already signing a contract, the original buyer may be able to force the sale through litigation.
Earnest Money in Oregon's Hot Real Estate Market
In today's competitive Oregon housing market, earnest money has become a strategic weapon. Portland transactions increasingly see deposits of 2–5% of the purchase price (up from the traditional 1–3%), with some cash buyers offering 10% or more to stand out. Buyers therefore need larger funds available up front, and sellers stand to gain or lose more if deals collapse. For buyers, a higher deposit signals seriousness. For sellers, it's added protection—but also added risk.
Tips for Avoiding Oregon Earnest Money Disputes
1. Smart Deposit Strategies
A deposit that's too small won't discourage a buyer from walking away. But if it's too large, Oregon courts may rule it a penalty and strike it down. A balanced approach—usually 1-3%—is safer unless both parties are comfortable with more. Sellers sometimes assume "nonrefundable" clauses will hold up, only to find Oregon courts won't enforce vague or punitive provisions that do not represent a genuine pre-estimate of damages.
2. Avoid Common Oregon Earnest Money Mistakes
The most frequent earnest money disputes in Oregon come from preventable errors. Buyers often lose deposits by failing to give written notice when a contingency isn't met. Sellers sometimes assume "nonrefundable" clauses will hold up, only to find Oregon courts won't enforce vague language. Another common mistake is overlooking provisions that require additional deposits if closing is delayed. Avoiding these Oregon earnest money mistakes can save you thousands.
3. Protect Your Interests Throughout the Deal
The best way to protect an earnest money deposit in Oregon is to track contingency deadlines closely. Missing one deadline by even a day can forfeit the deposit. Sellers can reduce risk by requiring additional deposits if the deal drags on, especially in a competitive Oregon housing market where delays can be costly.
4. Understand Your Litigation Risks
Standard Oregon real estate sale agreements include a "prevailing party attorney fee" clause. That means if you fight over earnest money deposits in court or arbitration and lose, you could end up paying both your lawyer and the other side's. Disputes often cost $10,000–$25,000+ per side, which makes settlement or mediation the more practical path for most parties. Litigation over earnest money often costs more than the deposit itself.
FAQs About Oregon Earnest Money Deposits
How much earnest money should I put down in
Oregon?
Most Oregon homebuyers put down 2-3% of the purchase price as an
earnest money deposit. In competitive Oregon housing markets like
Portland, deposits of 5% or more are becoming common.
What happens if the seller cancels the sale in
Oregon?
If an Oregon seller defaults without legal justification, the
buyer is entitled to a refund of the earnest money deposit and may
also sue for specific performance to force the sale.
Can an earnest money deposit be nonrefundable in
Oregon?
Yes, Oregon real estate contracts can include a nonrefundable
earnest money deposit clause. But Oregon courts strike down vague
or punitive provisions, so enforceability depends on careful
drafting.
What if the appraisal comes in low in
Oregon?
If the Oregon sale agreement includes an appraisal contingency and
the buyer gives timely notice, the earnest money is refundable.
Without an appraisal contingency, the buyer may lose the earnest
money deposit even if the appraisal is below the purchase
price.
Who holds earnest money in Oregon real estate
transactions?
In Oregon, earnest money deposits are typically held in escrow by
a licensed title company. Even if the escrow company fails, Oregon
escrow rules protect and transfer those funds.
How long does it take to get an earnest money deposit
back in Oregon after cancellation?
Once both parties sign cancellation instructions, Oregon escrow
companies usually refund earnest money deposits within a few
business days.
Can a buyer get the earnest money deposit back after
closing in Oregon?
No. After closing, the earnest money deposit is applied to the
purchase price of the Oregon property and cannot be refunded.
Your Next Steps
- Calculate 2-3% of your target Oregon home price for deposit planning.
- Review every contingency deadline before signing an Oregon real estate contract.
- Get legal review for any non-standard or nonrefundable clauses.
- Keep a copy of the Oregon deadline reference above handy during your transaction.
Don't let a costly mistake jeopardize your Oregon real estate deal. If you're entering into a home purchase or sale in Oregon, consult with a qualified Oregon real estate attorney before signing. A quick review by an experienced Oregon real estate attorney can save you from an expensive mistake and ensure your deposit is working for you, not against you.
Earnest Money Deposits In Oregon Real Estate: What Buyers And Sellers Need To Know
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
