Getting That Earnest Money Back When The Deal Falls Apart

By
Real Estate Agent with Keller Williams Realty 0575737

Deposit MoneyI have always told clients contracts are the rules of the game when things go wrong. I wish more agents could grasp that.

How Do You Get Earnest Money When The Deal Falls Apart?

Money put up as skin in the game for the buyer to show good faith. Often $500, $1,000, $2,000.

There is the contract and then there is the real world. Many buyers easily get the money back with failed inspections or they cannot secure financing.

 

 

Sellers pull their hair out with buyers walking at the table and NOT wanting to forfeit what the contract says - the deposit money.

What recourse do Sellers have?

  • Consult a real estate attorney and pursue getting the funds that way. Even THREATEN doing this works some times. In being practical, the attorney's fees are much higher than the deposit, so how can this work?
  • Call the Broker/Owner of the agency and request why will the agent and buyer NOT follow the contract? Pressure by the Broker. My luck has been the stubborn agent IS ALSO the Broker/Owner! Sigh
  • Request MORE funds up front on a home to let them know this limbo money they are fixing to lose is huge so they need to be serious as a potential buyer of the home
  • A recommended by attorneys compromise is agree to SPLIT the earnest money being refunded. Sure as a seller your house was off the market but at least you get something out of it
  • Definitely file a complaint if with the local board of REALTORS of the buying agent that you feel they are not following the rules of the contract and complying with it
  • If no deal is agreed to for release of funds in many states the money goes escheat to an unclaimed funds pool. No one gets the money. This follows a big waste of time for that transaction.

Life is not perfect with earnest money and the real world often turns out very different than what the contract specifies. But you live and learn and when deals fall apart for various reasons, money drives some people crazy, emotions flare, and true colors show that have NOTHING to do with a business deal. Do your best but sometimes that money deposited in escrow sometimes feels more like Monopoly money than really a promise of good faith that it is supposed to be.

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Cory Barbee 08/24/2011 04:48 PM
  2. Jim McCormack 08/25/2011 10:30 AM
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Show All Comments
Rainmaker
346,522
Sondra Meyer
Star View Real Estate - Colorado Springs, CO
Colorado Horse Property Specialist

Gary, congratulations on your feature!  I am tempted to say this post has made me feel lucky but I don't want to jinx myself or my future clients. 

August 25, 2011 08:06 PM #103
Rainer
156,380
Richard Foster
Nevada Perfect Homes - Green Valley, NV
Broker, ABR/M, CREN, CRS, GRI, RRG, SFR

Agents need to GET OUT OF THE DAMN WAY... We are NOT NOT NOT and let me say this again for the people in the cheap seats, we are NOT parties to the transaction. We are also not lawyers. DO NOT give legal advise. There is nothing wrong with trying to protect your clients, Buyers agents will help fight to get the money back (AS THEY SHOULD) and sellers agents will attempt to help retain the EMD... Other then that, get the hell out of the way and let the parties sort it out in arbitration, mediation, or let the lawyers have some fun in the pool.

August 25, 2011 08:37 PM #104
Rainer
157,536
Anthony Daniels
Coldwell Banker - San Francisco, CA
SF Bay Area REO Specialist

Fighting over earnest money is usually not worth it in the end, but every situation is different.

Best to move on and get the deal done elsewhere.

Good stuff, thanks for sharing it.

August 25, 2011 10:42 PM #105
Rainer
215,148
Gerard Gilbers
Stingray Performance Marketing - Waldorf, MD
Your Marketing Master

Gary, I agree that you must abide by the contract and for a buyer to just walk away the seller then should get the EMD. 

Sellers pull their hair out with buyers walking at the table and NOT wanting to forfeit what the contract says - the deposit money.

What recourse do Sellers have?

It depends on the situation and what was stipulated in the contract - it's not necessarily the seller's money regardless of what happens. 

Request MORE funds up front on a home to let them know this limbo money they are fixing to lose is huge so they need to be serious as a potential buyer of the home.   If the reason is valid to back out this makes no difference and under some contracts the seller can sue for the total price of the home for non-performance or breach of contract.

August 25, 2011 11:36 PM #106
Rainmaker
578,664
DeeDee Riley
Lyon Real Estate - El Dorado Hills CA - El Dorado Hills, CA
Realtor - El Dorado Hills & the Surrounding Areas

Great post Gary!  There are a lot of loopholes in the contract before contingencies are released.  Afterward it should be a lot harder as there was plenty of time to back out!

August 25, 2011 11:41 PM #107
Rainer
205,153
Marge Piwowarski
Phoenix AZ Horse Property - Phoenix, AZ
Phoenix AZ Horse Property, LLC

Great post and the comments are awesome!  Someone here has had every possible experience.

August 26, 2011 01:20 AM #108
Rainer
37,348
Michael Singh,Broker
Singh Real Estate - Corral de Tierra, CA

#11 said it for contracts in California

August 26, 2011 01:30 AM #109
Rainmaker
1,255,730
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I will fight tooth and nail for my clients deposit back.  That is my job.  However, I have never had anyone walk at the table on a flimsy issue.  It is generally a loan or inspection issue that is legitimate.  Once I had a loan fall apart after the contingency was lifted.  Listing Agent had altered the contract without our OK.  We raised hell over this fact, even though it did not have much bearing on the other issue. 

August 26, 2011 03:35 PM #110
Rainmaker
339,354
Laura S. Baker
First Weber Group - Lake Mills, WI
Realtor, (920) 728-4118, First Weber Group

So,... have you gotten enough comments yet?  LOL!  Man, that was one hot topic Gary! 

August 26, 2011 05:59 PM #111
Rainmaker
649,807
Realty Works Temecula
Realty Works Temecula - Temecula, CA
Real Estate, Temecula, Murrieta, Menifee

Hi Gary:  This is a touchy subject and you outlined all of the options so well!

August 26, 2011 11:38 PM #112
Rainer
28,724
Pat Morgan-Svetlik
United Real Estate - Dallas, TX
Delivering the American Dream, One Home at a Time

In Texas, we have an "Option Period" in our contracts.  That time frame, usually 5-10 days for a dollar amount $50 plus gives the Buyers time to do due diligence.  Should the home inspection disclose something negative, the Buyers can "Opt Out" during that time with no recourse.  I find that most problems are solved at that point.  However, I have had financing fall through just before closing that was unexpected.  The buyers had confidence that they could close based on their lenders pre-approval.  In each case, the Seller returned the earnest money.  Pre-Approval from a lender is another whole subject all within its self. 

August 28, 2011 09:02 AM #113
Anonymous
Anonymous
Anonymous

Good topic, Gary. Im a loan officer. I have an approved mortgage client in pursuit of a short sale in Massachusetts. He has made a full price offer with a request for up to 6% paid closing costs. He is ready to make a standard $500 EMD. However, the listing agent is persuading an additional $2500 and classifying it or defining it as a "P&S deposit". The listing agent is also persuading he get the inspection now rather than wait for approval of the short sale. The listing agent's position is that if they await approval of the short sale and then the inspection occurs and the buyer decides not to purchase, everybody's time will have been wasted, the home will go back on the market or get foreclosed on. There is only one bank (Chase). I do not have experience in short sales. My client's position, of course, is that he's reluctant to spend $300 or so on an inspection on a home that may not even be approved in the end. Also, should the short sale not be approved by Chase, he wants certainty of the refund of not only his $500 EMD but the additional $2500.00 "Purchase and Sale Deposit" as well, which when asked, the listing agent says is standard Massachusetts procedure or protocol. I ran this by a trusted, superstar Realtor up here in NH (Rebecca Skane Carter, I love love love her!!!) who said "No way, absolutely not. Demand acceptance of the short sale prior to any inspection or commitment to extra deposits". But again, this is a MA deal and the listing agent insists this is standard MA protocol. May I please get your input, Gary or any others who have a moment?

Thanks again for a great topic and Happy Selling!

August 29, 2011 11:32 AM #114
Ambassador
1,538,078
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Jamie: Since it is Massachusetts I would have you check with multiple good qualified REALTORS in your area and perhaps a real estate attorney prior to putting up that much significant cash. My gut feel goes with what Rebecca Carter is advising you. Be very cautious with that amount of funds. Above all it should be a win-win on both sides but banks in particular (Chase) can come down hard in NOT releasing funds easily. Also, look to REALTORS in your area who specialize in this type of transaction, a short sale.

August 29, 2011 11:39 AM #115
Anonymous
Anonymous
Anonymous

Gary,

Wow, thank you so much for such a quick response. My buyer and I really appreicate it. Thanks to a great active rain blog piece by Claudette Millette who is coincidentally in the very town my buyer's hot property is in, I have since discovered that in MA there is a 2 part deposit process. Too bad my buyer rushed out and got him a Realtor who doesn't know the short sale nor USDA process, despite my referral to an adept agent, he was in a super hurry and wanted to see homes on 18 hours notice. (sigh).

Thanks again!

August 29, 2011 11:50 AM #116
Rainmaker
114,580
Sean Williams
AcklesWilliams of Semonin Realtors - Louisville, KY
Your Louisville Realtor

great info, thanks!

August 29, 2011 01:28 PM #117
Rainmaker
277,216
Kasey & John Boles - Jon Gosche Real Estate
Jon Gosche Real Estate, Boise ID - Boise, ID
Boise, Meridian, Ada/Canyon/Gem/Boise Counties

In makes me nervous when agents just say "if you cancel the contract you'll just lose your earnest money" or buyers just think they can get out willy nilly.  The fact is, often this is how it is handled, but that is not the only repurcussion that may come with breaching a contract.  After all, it is a contract....

August 30, 2011 01:36 AM #118
Rainmaker
128,113
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

The contract rules.  Learn it, love it, be a part of it.

September 05, 2011 09:02 PM #119
Anonymous
Anonymous
lisa

I sold my house, everything was signed, inspection passed, FHA passed the house, closing was scheduled. The day of closing the buyers backed out of the deal! I moved out the day before. Do I get that earnest money? The realtors are saying I don't? That they all get a cut on it? It cost me money to move, now I have to move back?

June 05, 2012 05:47 PM #120
Anonymous
Anonymous
Amy

I'm a buyer who is trapped in hell due to an agent who is both technology challenged and has not infomed his seller properly.  Bottom line, a request was made to the seller to re-negoitate the contract after our lender failed to disclose closing costs to us.  Originally the seller verbally agreed to do so, the following day she decided that she was unable to do so financially and requested to cancel the contract.  We were a bit sad but understood that she was unable to continue with the sale.  Now almost 2 weeks later we still do not have our earnest money back, and we have found out that escrow is going to hold $300.00 of a charge from the HOA to print the CC&Rs from our earnest money.  In the purchase agreement the seller agreed to pay the $300 fee.  Now that she has cancelled the contract she has refused to submit the funds to escrow and on top of it she and the escrow company have requested we return the CC&Rs.  So, at this point we do not have any of our money back which she agreed to refund because she was cancelling the contract, and if we do get our refund it will be minus a fee that she is bound by contract to pay.  What do we do?

September 13, 2012 06:01 PM #121
Ambassador
1,538,078
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Amy: The contract, even if canceled governs how the earnest money is to be distributed after a purchase falls through, even with regard to what the seller agreed to. Have the buyer agent contact the seller agent's broker and let them know they are in breach of contract if they don't return also the $300. Where it can be sticky is if the seller agent is also the seller broker. This small amount is too little to go for legal advice (other than free) or to take to court. GET THE BROKERS and the escrow settlement company to work this out for you.

September 13, 2012 07:58 PM #122
Anonymous
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Gary Woltal

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