What Happens to the Earnest Money I Submitted?
Most buyers ask if the check will be cashed or held until closing? Buyers want to know if they get the money back if they change their minds. They want to know if the offer doesn't go through will they get their money back. What if the seller doesn't fulfill their part of the agreement?
These are valid questions and the agent should answer them according to state laws and rules. In Tennessee, there are strict rules as to what happens to earnest money and how it is to be disbursed. Where does the earnest money go?
First you must understand what earnest money is. It is a show of good faith to the seller. In other words putting your money where you mouth is. An offer with substantial earnest money gets the attention of the seller. It shows that the buyer has skin in the game and has some financial strength and is taking a risk, too.
State law in Tennessee says if the broker holds the money it must be deposited promptly into the broker's escrow or trust account. This account is set up solely to hold client and customer money. It can be held by either the listing broker or the selling broker. Another practice that is allowed is that the escrow company, title company or closing attorney may hold the money in lieu of the broker. They deposit it into their company's trust account.
Whichever way it is done, the buyer and seller must decide and must be stated and agreed on the sales contract. Borkers prefer a cashiers check or personal check rather than cash. If the buyer is getting financing, underwriters do not like cash payments and it can cause a problem.
The buyer and seller can decide to move forward with no earnest money. They can agree to delay the payment of the money. They can agree for the seller to receive it as a non-refundable deposit. Make sure the terms are clearly spelled out in the purchase and sale agreement.
Once the check is turned over by the buyer it will be deposited in the escrow account unless otherwise agreed by the buyer and seller in writing. The check must be good funds. If it should bounce, the seller is to be notified. The buyer is given a chance to make it good by presenting certified funds. If this doesn't happen, according to Tennessee contracts the seller can opt to terminate the contract or move forward without it.
Once the money is in escrow the only ways to get it out are as follows:
- The contract closes and the check is credited to the buyer's sale at closing.
- One of the parties breaches the contract. If the buyer breaches the earnest money will default to the seller. If the seller defaults, the buyer will get his earnest money back.
- The parties can mutually agree to terminate the contract. The money can be divided upon the wishes of the parties.
- The buyer's contract was contingent on financing, inspection, appraisal or other terms and buyers acting in good faith was unable to perform.
- If the buyer and seller cannot agree as to the release of earnest money, the broker is able to file an Interpleader Action with the court to let a judge decide.
If the contract closes, the earnest money will be given as a credit to the cost of sale and purchase price in the buyer's behalf. If all the money is not needed, the balance is return to the buyer as a refund.
For real estate services in Clarksville, TN contact The Real Debbie Reynolds at 931-320-6730.