When a sale contract is presented it is normally accompanied by what is called in the real estate business an β€œearnest money check”. In an ideal world, if you found the home of your dreams, you and the owner would sign a purchase contract, followed by a handshake, and later, your
down payment. In the real world, to prove your offer to purchase a property is β€œearnest,” or β€œin good faith,” you need to put money on the table as soon as the ink of your signature dries on the purchase contract. It’s important to know that this earnest money deposit is not an extra cost of buying a home. It will be credited to you towards the down payment at closing.

This earnest money deposit is a fraction of your down payment which indicates the buyer’s intent and willingness to execute the agreements laid out in the contract with the seller. The buyer usually pays it in the form of a personal or certified check issued to the real estate brokerage of choice or title company. The deposit will be held in an escrow account, a type of trust fund controlled by both the seller and the buyer, until you successfully complete the closing.

Sometimes something goes wrong, or the buyer simply decides not to move forward with the purchase of the property, or the seller decides not to sell after signing the sale contract, and an issue arises as to who is entitled to the earnest money.

When a real estate contract is terminated, a cancellation agreement is signed by all parties and the cancellation agreement identifies who is to receive the earnest money. However, buyers and sellers cannot always agree on who is entitled to the earnest money. Most realtors do not explain that it requires the agreement of both the seller and buyer before a title company can make distribution of the money to either party (unless specified differently in the contract).

On occasion, the seller and buyer cannot agree as to who is entitled to the earnest money at which time State law requires the title company hold the earnest money pending agreement between the buyer and the seller. If the matter is not resolved within a certain amount of time the money reverts to the State and neither party gets the benefit of the money.

It is important to identify in the contract what is going to happen if the real estate contract is canceled. It is also critical that the earnest money be paid to a title company and not the real estate brokerage or seller directly.

Just hope that if something goes wrong resulting in a cancelation of the real estate contract it happens early in the process to avoid lost opportunities for the seller. Don’t let the cancelation drag on. If you are sure you are going to cancel the agreement, then cancel as early in the process as possible.

On occasion a seller will not agree to refund the earnest money to the buyer, even though the buyer is entitled by contract to have the money refunded to them. If this has happened to you call our office.

After reviewing your documents, we determine who is entitled to the earnest money, and make recommendations on what to do. Most of the time this can be determined quickly and easily.

If you are in a dispute with a buyer or seller that involves a disagreement over the release of earnest money, call our office. We have had great success with assisting clients with earnest money disputes.