How does Earnest Money help the Seller? Suppose the buyer deposits $1,000 earnest money and indicates in the offer that should he default, the only consequence in forfeiture of the earnest money. If all other contingencies are satisfied, and the buyer simple changes his mind, he forfeits the EM. But suppose it has been several months since mutual acceptance, the home has been on pending status, and the seller has missed some good marketing time. Perhaps it would have been more advantageous for the seller to have insisted on "Seller's election of remedies". This would allow the possibility of collection of actual damages in excess of $1,000.
What if the seller requests a deposit of "non-refundable" earnest money. This is contradictory, since earnest money is, by definition, refundable. A well-written financing or inspection addendum would include a clause providing for termination of the contract and refund of earnest money if the buyer disapproved the inspection or could not qualify for financing under acceptable terms.
What if the seller requests a non-refundable deposit. For example, the seller agrees to install upgraded appliances prior to closing if the buyer makes a non-refundable deposit. After the deposit is made, but before the appliances are purchased and installed, the buyer has an inspection which reveals unacceptable defects and rescinds the offer. The buyer is probably entitled to refund of earnest money-but not a non-refundable deposit.
A seller may insist on a substantial non-refundable deposit as leverage to discourage the buyer from backing out of a deal. If the buyer agrees and makes the deposit, it probably indicates serious intent to complete the transaction, or the ability to lose the money without significant financial impact.
How would you deal with earnest money versus non-refundable deposit?
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