What happens to earnest money when a real estate transaction falls apart?
Earnest money is the buyer’s good faith deposit, which shows that they have the funds to purchase the property.
There are a number of ways that the buyer can legitimately terminate the deal and keep their earnest money, such as:
- Disagreement during the attorney review period
- Buyer backs out of the deal based on inspection issues
- Buyer denied financing during mortgage contingency
- Problems during the final walkthrough
It can be difficult for a seller to receive the earnest money when a buyer terminates the deal because buyers often include several contingencies in the contract.
If the buyer defaults on the contract without any of these contingencies, the seller is still at a disadvantage because both the buyer and the seller have to agree on who gets the money.
However, if the buyer and the seller cannot agree on who gets the money, they may be looking at a lawsuit. No one really wants that to happen so these lawsuits are rare, but they do happen.
The best way to navigate this situation is to have a great real estate attorney and a great Realtor by your side to guide you through the transaction.
If you have any other questions about earnest money or would like to learn more about our current real estate market, give me a call or send me an email. I would be happy to help you!