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Fighting back when a seller tries to keep a buyer’s earnest money

On Behalf of | Dec 8, 2020 | Real Estate Transactions |

As a real estate professional, reputation and word-of-mouth referrals are everything for your business. In a situation where a buyer ends up making a bad purchasing decision or losing a substantial amount of money, they could potentially blame you. Not only could a claim made by buyers affect your reputation and your licensing, but it could also have an impact on your financial solvency as a professional. 

You need to be ready to fight for your clients and protect them from unscrupulous sellers who might take advantage of them. You might find yourself in a situation where a seller tries to keep earnest money that they should return to your clients.

Earnest money is meant to prove seriousness about the transaction

A buyer who makes a purchase offer needs to have some kind of evidence that they intend to follow through with the offer. Earnest money usually serves the purpose of showing a buyer’s sincerity and giving a seller reason to agree to a purchase and change the listing to pending until closing occurs.

Unfortunately, properties don’t always turn out to be as wonderful as they seem during the first walk-through. Sellers and real estate agents sometimes go to great lengths to hide issues and defects so that buyers make bigger offers than what the property is truly worth.

Failing an inspection or not meeting certain financial standards during an appraisal could be reasons for your buyer to back out of an offer. In a situation where your seller made an offer and submitted earnest money only to back out for a justifiable reason, can the seller keep the earnest money?

Your offer will play a large role in what happens with earnest money

The rules for handling earnest money are often included in the language of the purchase or offer you submit to the seller. You may never have seriously considered those rules because you have never had to invoke them.

Including provisions that allow your buyer to back out of the sale if the property fails inspection, if it appraises at a lower value than the offer or if the buyer is unable to sell their home are all common ways to protect your buyer financially during an offer. These contingencies ensure there is no financial loss for the buyer.

If the seller and their agent refuse to return the earnest money, you may need to go to court in order to protect your buyers and your reputation as a professional.