Thu, Mar 13, 2008
Today’s current market can influence how a seller will deal with earnest money. If they have another buyer ready to take over they may return it but with the market being a sellers market and they may have waited months on this deal they may not be receptive to returning the money. Remember you have tied there time up with the purchase process no matter if it is one week or a month.
Earnest money is a check given to the buyer when you want to purchase a property and to show good faith till the closing on the property.
When writing a check for the earnest money, do not write it for more than you want to loose. If you change you mind you do not get it back.
It is suggested to choose your escrow company wisely. Sometimes the seller has one in mind and sometimes they are flexible on this. You should always find out before writing this check if they do honor unilateral right to cancel.
The buyer has a unilateral right to cancel, but the escrow holder may have an internal policy requiring signatures of both parties to release the earnest money. Many escrow companies do this for fear of releasing a check without the seller’s approval.
Talk to your agent when writing the contract and ask for all legal out addendum forms incase you choose to use this option. For example if contract stated with approval of an inspection and the house did not pass you would use the legal out form and request the earnest money back. There are usually dates for these legal outs and you need to be aware of time lines.
If you are requesting return of earnest money due to Finance Contingency, this is rarely covered under unilateral rescission rights. That is why you want to be sure you are approved for the mortgage before making an offer. Meeting with a lender should be the first stop in the house purchasing process.
If you just change your mind you should expect to lose your money. You may thing the seller didn’t suffer any damage why should they get to keep it and you would have two elections in the contract. “Forfeiture of Earnest Money” or “Seller’s Election of Remedies”. Usually the seller gets forfeiture of earnest money and gets to keep the check. Remember as I stated previously in a buyers market they maybe more inclined to keep it as the next person maybe months away.
Meeting with a lender and getting your approval before shopping for a house is the best way to protect yourself from a finance contingency problem with earnest money when buying real estate.