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Earnest Deposit

When a potential buyer puts down an earnest deposit and the deals falls through, caused by the potential buyer. Is that returned to the potential buyer, given to the seller, or some % given to each?
  • December 14 2010 - US
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Answers (5)

In most cases if the buyer breaches the contract the seller will receive the earnest money, but it is completely different in every situation and the details should be explained in your purchase contract. If the buyer cancels the contract due to material defects discovered during the inspection period or an appraisal coming in under value, etc. (as long as you are within the proper timelines layed out in the contract "time is of the essence") you will be entitled to getting your earnest money back. If you have a Realtor, ask them, that's why you hired them. If not, you really need to thoroughly read your contract and understand it for yourself to protect your interests. Good luck!
  • December 16 2010
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Hopefully, you have a contract that spells out how , when or if  the deposit may be kept by the seller,  or returned to the buyer.

If  so, read the contract.

I am going to assume you don't have an agent,  if I am wrong - then direct this question to your agent, at least as a starting point.

Ultimately, even with a contract, you need to seek legal help if you find yourself in the above situation.
No one on the internet can give you any specific advice or answer other than to speak with an attorney.

Best wishes.........
  • December 14 2010
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This entirely depends on the contract.  Most commonly used contracts address this issue.  
  • December 14 2010
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Profile picture for sunnyview
If the deal falls through because the buyer backed out without cause like an inspection concern, mortgage qualification issue or an appraisal issue and did not follow the timelines in the contract for terminating, the seller can often make a case to keep the earnest money.

You would need to read your contract and see if the buyer followed it and met the timelines. If not, it may be time to seek legal advice to see what your rights are. Do not rely on your agent to counsel you to keep earnest money. Most will not. Instead, they will tell you to put the issue behind you and return 100% of the deposit to the buyer, but you may in fact have legal cause to keep all or part of the deposit. A legal consultation is generally not very expensive and then you can be sure of all your options.
  • December 14 2010
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The answer is, IT DEPENDS.  What is in the contract?  Are we talking about a small binder or a formal down payment on the formal contract?  Why did they change their mind?  Was it issues with the house inspection? Do they not qualify for the mortgage? Did they lose a job? Did they find a different house?  What is in your contract? Talk to your attorney, he is the one who can best answer your question because he knows your contract and understands it.  Also, keep in mind, if the buyer sues for his deposit back, you may be held up from selling to another buyer. Is it worth your time? 
  • December 14 2010
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