I recently had a Seller ask me if they could keep the Earnest Money if a Buyer should decide not to purchase the home. This occurred when a Buyer decided not to purchase the home just 2 weeks before closing. In this specific case, the Buyer decided not to purchase the home based on a home inspection report that cited mostly "cosmetic" issues that were known to the Buyer at the time the contract was written and some issues needing repair such as a leaky faucet that the Sellers agreed to repair prior to closing. It would seem that if the Sellers are willing to make all the needed repairs, which as stated were minor and cosmetic, should the Buyer not be required to close on the home?
Most Purchase & Sale Agreements contain clauses or contingencies that allow the Buyer to get their Earnest Money back should they decide to terminate the agreement. The most common types of contingencies that allow this to occur are Home Inspection and Financial Contingencies.
A Home Inspection Contingency allows the Buyers to "check out" the home by having a qualified Home Inspector perform a thorough evaluation of the home's condition. The Inspector will provide the Buyers with a written report and if this report contains defects requiring repairs or other issues such as mold or water infiltration, the Buyers could decide based on that report not to go through with the purchase of the home and if so stated in the Purchase and Sale Agreement, can terminate the agreement and have all Earnest Money refunded. It all depends on the specific language contained in your specific Purchase & Sale Agreement. Both Sellers and Buyers need to pay particular attention to this language and clearly understand what their respective options are.
A Financial Contingency simply stated, says that unless the Buyers can fully qualify for a loan to purchase the home at the time the closing occurs, they are entitled to receive a full refund of the Earnest Money.
If there are ever "unusual circumstances" surrounding the purchase of a home such as purchasing a home AS IS WHERE IS or as I understand is available in some states, a Non-Refundable Earnest Money Deposit, it needs to be clearly stated in the contract, usually in the Special Stipulations Section of the Agreement.
In short, Buyers should always consult and retain the representation of a qualified Real Estate Professional to ensure they know under what circumstances their Earnest Money is refunded. Sellers should also have proper representation in negotiating a contract on their behalf to ensure that perspective Buyers are truly serious about buying their clients' home and are committed to the purchase.
Surprises are not welcomed by either party especially at the 11th hour. Don't be a part of one.
Comments(1)