How can a buyer lose earnest money is a different technique to inquire as to when sellers may keep it.
You will almost always need to provide earnest money or a good faith deposit when purchasing a home. Between one and five percent of the buying price serves as the standard earnest money sum.
When purchasing new building, earnest money might be as much as 10 percent. The real estate agency that is marketing the property will typically keep the earnest money in an escrow account.
The deposit money, however, might be kept by a title business, real estate lawyer, or specified escrow company.
To make sure that a house buyer upholds their end of the bargain, earnest money deposits are used.
Without earnest money, a buyer would be free to back out of a purchase whenever they wanted without facing any repercussions.
To safeguard the seller’s interests in the sale, earnest money is employed. They feel more secure knowing the buyer will actually buy their house.
The return of the earnest money is a frequent query from buyers. They want to know if a seller can keep my earnest money.
Deposits paid as earnest money are refundable, but only if the buyers follow the terms of the contract.
The earnest money might be kept by the seller if the buyer defaults. Therefore, the earnest money is no longer refundable.
Let’s examine how a seller can wind up holding an earnest money deposit made by a buyer.
The Buyer Leaves Without Reason
Every now and again, a buyer in a real estate transaction will change their mind and decide they no longer want to acquire a particular home. Realtors frequently refer to it as “buyer remorse.”
Sellers are allowed to keep earnest money when a buyer backs out of a deal without giving a reason. The only reason there is earnest money in the first place is because of circumstances like this.
Buyers should always consider their options thoroughly before submitting an offer on a home. Are you actually in love with the house, or are you just acting hastily?
When purchasers are involved in bidding wars, buyers’ regret occurs more frequently. In a seller’s market for homes, buyer’s remorse is frequently more prevalent. Bidding wars between buyers cause them to overpay for items.
Have you ever made a large purchase only to later question your decision? It occurs.
Buyers should be aware that if they back out of a deal without giving a valid explanation, the seller may keep their earnest money and probably will.
It can occur in buyer’s markets as well, but buyers are typically more cautious.
When contractual deadlines are missed, sellers are permitted to keep the earnest money
Sellers may retain the buyer’s down payment.
There will generally be two common contingencies in real estate contracts. They are the mortgage contingency provision and the home inspection.
Buyers risk losing their earnest money if they don’t complete the sale if they don’t adhere to the timeframes under these real estate contingencies.
Related post: Why a Real Estate Attorney is Necessary When Purchasing or Selling a Home
Contingency for home inspection
A buyer will typically hire a qualified house inspector to do the examination. The condition of the property, both inside and out, will be carefully examined by the inspector.
The buyer will be required to undertake their inspection by a specific date, according to the house inspection contingency clause.
The provision will also provide a deadline for the buyer to submit a report of their findings to the seller.
Buyers who violate these contractual deadlines risk having their earnest money returned to the seller if they decide not to complete the transaction.
Mortgage Financing Conditional Provisions
The purchase and sale agreement will often include a mortgage finance clause unless the buyer is paying cash.
How much the buyer will finance is specified in the mortgage clause. It will also specify the deadline by which the buyer must acquire the lender’s mortgage commitment.
The condition will no longer apply if the buyer fails to tell the seller in writing that they require a loan extension. The backup plan will no longer be valid.
The seller would be permitted to keep the earnest money if the buyer is unable to secure financing and they have allowed their mortgage clause to expire.
Contracts are intended to be adhered to. Buyers put themselves in the undesirable situation of perhaps losing their earnest money to a house seller when they are not.
The Kick-Out Clause Was Not Obeyed
Sometimes a kick-out clause is suggested in place of a house sale contingency, which is unlikely to be accepted by a seller.
A kick-out or bump clause permits a seller to accept a buyer’s offer while still actively marketing the home in the goal of receiving a higher one.
The seller must inform the buyer when a second buyer emerges, and the buyer must then decide what to do. They either carry out the deal or they don’t.
A buyer would risk losing their earnest money deposit if they decide to proceed and must sell their house in order to qualify for a loan.
The buyer would lose their earnest money to the seller if they couldn’t complete the transaction.
Don’t Mix Up Down Payment And Earnest Money
When it comes to earnest money vs. down payment, first-time buyers frequently disagree. They are not interchangeable! Earnest money is a guarantee to a seller that the deal will go through.
On the other hand, a down payment while obtaining a mortgage is a guarantee to the lender. I hope you can clearly perceive this difference. For instance, if your down payment is 20%, you might put down an earnest money deposit of between 3-5%.
The earnest money could be included in your down payment. At the closing, these funds are always properly accounted for.
What occurs if there is a dispute about earnest money?
Buyers and sellers occasionally argue over who gets to keep the earnest money deposit. Escrow agents generally aren’t allowed to choose who gets to keep the money on their own in most states.
If there is a disagreement regarding who will receive the earnest money, it will automatically remain in the account until a court with appropriate jurisdiction determines whether the seller or the buyer should receive the earnest money.
A release will be signed by both parties once it has been decided who will keep the earnest money. For instance, the buyer and seller would both need to sign the document if a real estate business was holding the earnest money.
The terms of the agreement will specify who keeps the money and that each party will indemnify the real estate firm for the release in question.
Last Words Regarding Who Keeps The Earnest Money
It depends on who violated the terms of the contract when a buyer or seller inquires, “Who keeps the earnest money when a sale falls apart?”
A buyer will forfeit their earnest money if they fail to fulfil one of their obligations. On the other side, the seller won’t have a claim to the earnest money deposit if the buyer cancels because of one of the circumstances.
Now that you know when sellers can keep a buyer’s earnest money, you can make more informed decisions. If not, speak with a nearby real estate lawyer.
