Earnest money shows that a buyer is serious about purchasing a home. Typically, during a home sale, the earnest money deposit (EMD) applies to the purchaser’s closing costs or converts to the down payment. However, sometimes, a home sale may encounter problems, and the transaction may not be completed despite the best efforts of all involved parties. When a home sale encounters problems, and the purchase cannot be completed, which scenarios allow the buyer to get their EMD back, and in which scenarios will a buyer not be able to get their EMD back? This article discusses some of the top reasons for purchasers to get their earnest money deposit back.
There are several reasons a home buyer might be able to receive the earnest money deposit back. If you signed a purchase agreement, check the agreement for reasons for which you could reclaim your EMD. However, typically, the following are the most common reasons for home buyers to get their EMD back;
If a purchase agreement includes a loan financing contingency, and a buyer is denied a loan, they can back out of the transaction and get their earnest money deposit refunded.
Before closing on a home purchase, a buyer may decide to conduct a title review, which entails searching public records and recorded documents to identify possible issues with the title. Examples of defects to a home title include unknown heirs and outstanding liens. If a purchase agreement includes a contingency regarding the title, a buyer who identifies defects to the title can back out of the agreement and recover their earnest money deposit.
Before a home sale is closed, the buyer will conduct a home inspection. During a home inspection, things like the house’s foundation, electrical systems, and heating and cooling systems are inspected. If the inspection reveals major issues, the buyer can negotiate with the seller to have the issues fixed, lower the sales price, or they can choose to back out of the purchase. If a buyer chooses to back out of the agreement after the results of a home inspection reveal major issues with the house, they have the right to get their EMD back.
When buyers are trying to sell a property while at the same time trying to buy another property, they usually include a home sale contingency in the purchase agreement. This contingency gives you, the buyer, a specific amount of time to sell and settle your existing home in order to finance your new home. If the buyer is unable to sell their current home within the agreed-upon time, they can back out of the agreement and retain the EMD.
If, before the close of a sale, the buyer realizes that the seller did not complete agreed-upon renovations or repairs, they can walk away and expect a refund of their EMD.
If you are trying to cancel a purchase agreement and are having issues with earnest money, contact our attorneys at SAC Attorneys LLP for professional help.