Texas Real Estate Commission (TREC) State Practice Exam

When a contract is terminated due to unmet contingencies, the earnest money is refunded to the buyer. Contingencies are conditions specified in the sales contract that must be met for the contract to be valid and the transaction to proceed. Common examples include financing contingencies, inspection contingencies, or appraisal contingencies.

If these contingencies are not met and the contract is subsequently terminated, the buyer typically has the right to reclaim their earnest money as they have not breached the contract. This process helps protect the buyer's initial investment and ensures that they are not penalized for contingencies that were not satisfied.

In this context, the other options would not be applicable because forfeiting the earnest money to the seller would imply a breach by the buyer, while holding the earnest money in escrow indefinitely or donating it to charity would not respect the contractual obligations regarding contingencies. Thus, returning the earnest money to the buyer is the correct and standard practice in real estate transactions under these circumstances.