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What if a seller won’t return someone’s earnest money?

On Behalf of | Jan 18, 2024 | Real Estate Transactions |

Selling a home is a process fraught with risk. Not every buyer necessarily comes to the table with a good faith intention to complete a transaction. A transaction that falls through could lead to relisting the property and other expensive challenges for the seller.

Earnest money serves as a way to protect sellers from insincere buyers and potentially expensive delays. The buyer puts their deposit in escrow with us. Those funds are part of the offer made. The earnest money counts toward the down payment and the overall purchase price if they complete the transaction.

However, if an anticipated sale does not go through for some reason, there could be conflict about the earnest money. What happens if a seller won’t return a buyer’s earnest money?

Legal action may be necessary

Not every canceled real estate transaction justifies the retention of the buyer’s earnest money. Many purchase agreements include contingency clauses that protect the buyer’s money if they do not buy the home. For example, appraisal contingencies could allow someone to cancel the closing if the appraisal came in lower than anticipated. Depending on the language in the purchase agreement, a buyer may receive all of their earnest money back in certain scenarios.

Unfortunately, sometimes sellers refuse to return the earnest money. The buyer may need to have their attorney send a formal request to cancel the transaction and return the earnest money. If the seller still refuses to release the funds, then the buyer may need to consider legal action. Oftentimes, the possibility of pending litigation could prompt a seller to finally return the funds they initially tried to retain. Buyers frustrated by the loss of their earnest money may need to review the offer that they made to the seller very carefully to determine if they have the right to take legal action.

Reviewing the terms of the offer can help a buyer understand if they are in a position to demand the return of their earnest money after a canceled real estate transaction.