Making an offer to buy a piece of real estate is a big commitment. You could make payments on that property for the next three decades of your life. You will also be responsible for anything that goes wrong with the property once you are officially the owner.
There are numerous reasons why buyers may choose to back out of a real estate transaction. There may be an issue with the property itself that they discovered during the final inspection. They could have trouble getting financing despite their pre-approval. They might even have an issue is selling their home. When does the seller have the right to keep someone’s earnest money?
When the buyer backs out without contractual protection
The point of earnest money is to impress upon the seller how serious you are about your offer. The earnest money will apply toward your down payment when you finished the transaction. If you do not complete the transaction, then the seller may try to retain your earnest money as compensation for the inconvenience and delays involved.
If you chose to cancel the transaction, they may have grounds for their claim. Often, contingencies in your offer will protect you if your appraisal comes in low or your financing falls through. If you don’t have contingencies in your offer, you still have protection if the seller is the one who canceled the transaction.
However, if you did not include contingencies and the seller is upset about your decision to retract the offer or cancel the closing, you may end up going to court over who gets to keep the earnest money. Understanding what could trigger real estate litigation can help you plan for an upcoming transaction.