It takes weeks, and oftentimes well over a month, for a home closing to occur. The process begins with a listing, and eventually a buyer makes an offer on the property. That offer may lead to negotiations and then a purchase agreement. The buyer will have to finalize their financing and make arrangements to move into their new home, while the seller will need to prepare for the transfer of ownership and to vacate the premises.
Unfortunately, a lot can go wrong between when the seller accepts an offer and when the buyer assumes tenancy of the property. What happens when the party that is purchasing real property backs out of a transaction before closing?
The seller could try to keep the earnest money
Typically, buyers pay a deposit to protect sellers from the financial hardship that would occur if the transaction fell through. A portion of the money someone saves as their down payment will serve as their earnest money for the offer.
Earnest money serves as a means of showing that the buyer has an earnest interest in completing the transaction. Should they fail to purchase the property, the seller could potentially keep that earnest money, which is often 1% of the sale price or more. In competitive markets, offering a higher amount of earnest money can be a way for a buyer to make their offer stand out from others.
There are often circumstances in which the buyer can cancel the closing without endangering their earnest money. Any contingencies negotiated in the purchase agreement could prevent the seller from claiming the earnest money. Provided that the situation meets certain conditions, the buyer could potentially cancel the closing without incurring any kind of financial penalty if there are issues with inspections, financing or appraisals.
Both buyers and sellers need to understand the implications of different terms in a contract if they want to protect themselves from the numerous issues that could arise between negotiating the purchase of a property and actually closing the sale. Having professional support while preparing for a residential real estate transaction can benefit both those who are buying and selling real property.