At the beginning, let's establish what the earnest money is.

Earnest money is a deposit paid by the buyer and held by a "holder." Its sole purpose is to demonstrate to the seller the buyer's sincerity in making the offer.

Basically, the buyer is promising the seller that the buyer will try his hardest to buy the sellers house, and if he does not succeed, he may forfeit the earnest money, subject to certain conditions.

It is important to know that earnest money is not technically required for a contract to be valid. While earnest money is often seen as the "consideration" for a binding contract, the promises of the respective parties to perform can suffice for that purpose.

But earnest money is popularly seen as the physical evidence of a buyer's determination and sincerity in making the offer. Most agents would likely advise a seller against accepting any offer that was not accompanied by an earnest money check.

In today's real estate market, a small earnest money will probably be rejected by the seller as unsubstantial. But in my opinion, an overly large earnest money is also a mistake.

Because the contract typically requires the buyer to quickly apply for the needed loan, the seller will likely receive a preliminary report on the borrower's qualifications. Lenders are happy to report the likelihood of success to any seller who inquires.

My advice to you is that a buyer should be prepared to provide to the seller a letter of pre-qualification and a check for one thousand dollars, but no more. Only in unusual or high-dollar transactions would additional earnest money funds be necessary to protect the seller.

In addition, earnest money funds should only be held by a licensed broker or a real estate attorney. Allowing the seller to hold these funds is simply not wise. Because brokers and attorneys are both licensed and regulated, they are legally required to keep escrow funds in trust accounts.

The Georgia Association of Realtors (GAR) standard purchase and sale contract has much to say about earnest money, and because their form is so widely used in Georgia, we will use it as the basis for our examination.

Unfortunately, most home buyers in Georgia are not educated on the exact terms and conditions that must apply before a refund of the earnest money can occur. That circumstance often leads to misunderstandings, and that is not what you want to happen when you enter into a real estate sales contract.

Presumably, all buyers are sincere when they make their offer. But the fact is that there are times when the buyer may feel a need to withdraw from the sales agreement and receive a refund of the earnest money, and this is where most problems develop.

The GAR sales agreement spells out the following circumstances under which a typical buyer may expect a refund of his earnest money:

* failure to qualify for the loan specified in the agreement after a prompt application and a diligent, good-faith pursuit.

Most buyers get pre-qualified for the loans they need, but if the rate rises or the lender fails to deliver, the earnest money should be refunded.

* failure of seller to provide a termite letter within ten days of contract.

The lender will require a satisfactory termite letter, but a smart buyer will conduct their own termite examination within a couple of weeks of closing. Should the new inspection reveal an active infestation, the seller's termite inspector must provide a free treatment.

* failure of property to meet buyer's expectations under the "free look" inspection provision

Here's where it's vital to "check the box" labeled "Property Sold with Right to Terminate". Checking any other box could force you to purchase the house regardless of the results of your inspection.

In addition, I suggest that you strike paragraph (c) of the GAR agreement dealing with other contracts, as it has nothing to do with your property inspection.

* failure of seller to provide proof of ownership through title examination.

Smart home buyers always purchase the optional "owners" title insurance policy to protect the buyer against any latent or undiscovered title problems.

* failure to close due to the refusal of seller.

Attorneys tell me that it is unlikely you could legally force the seller to sell, so you would see the return of your earnest money, at a minimum.

That makes exactly five circumstances under which you can get your earnest money back, and the last two aren't likely to happen.

So here are my suggestions on how to deal with any real estate offer:

1. Read any offer to buy real estate carefully before you sign it.

This is the most important advice I can give you as you prepare to buy your home. Amazingly, most buyers never read their offer.

2. Know that there are specific time limitations on each of the contingencies listed above, and that if you fail to meet a deadline, you can lose your earnest money.

3. Discuss carefully the first four contingencies listed above with your own attorney, and follow your attorney's advice.

Remember that a real estate agent is not qualified to give you legal advice, and if they do, you should not rely upon it. In the event that a misunderstanding develops into a full-blown earnest money dispute, the fact that your agent told you something will not help you get your earnest money back.