can you keep earnest money from real estate contract?

Question

contract is contingent on buyer selling current home. they have a contract on it but may not close before deadline. they are trying to get out of contract without forfieting their earnest money.

Answer 1

If the contract is contingent on selling their current home, they can legally get out of the buying side of the contract (and keep their earnest money) if it does not sell.

Because their current home is under contract, get your agent to file a unilateral extension that keeps them under contract to the closing date (providing your state's laws allow this as mine does).

Ultimately, it's up to the broker holding the earnest money to decide what happens to it should they back out. Consult your agent's broker about the situation...you did sign the contract with the contingency, so don't get angry if the broker has a different opinion than you...

Answer 2

The whole meaning of a contingency clause is the idea that the promises of a contract will be nullified if the event identified as the contingency does not occur prior to a certain date.

For example - a prospective buyer approaches a seller and says "I'll buy your house for $1 million, and I promise to deliver my million dollars to you no later than June 31st. However, this offer is CONTINGENT on the additional event that I must sell my current house before June 31st." The contract will then go on to stipulate that if the contingency does not occur (the buyer has not sold his/her house by June 31st), then the entire contract will be voidable by the buyer. This means that the buyer has the right to notify the seller that he/she is excercising their right under the contract to cancel the deal.

Under these circumstances, the contract will usually further state that if the deal is canceled by the prospective buyer because the contingency clause has failed - that the deposits will be returned to the buyer and both parties will be returned to their previous state - before the contract was written.

Many sellers are leary of contigency clauses, for exactly this reason. Contingencies create just this type of uncertainty. A seller has taken his/her house off the market and is now waiting to see if the contigency will be satisfied. Given multiple offers, one with a contigency, and one without, most realtors would probably recommend the contingency-free contract - assuming that the money was roughly equal, of course.

That being said - if this contract is what I suspect it must be - the buyer has an "out clause" in the event that the contigency doesn't occur - and that out clause is probably coupled with a clause that states that the deposits will be returned if the contigency does not occur. Your only probably recourse is that the clause would not cover a situation where the buyer did use his/her "best efforts" to ensure that the contigency was satisfied. If you know for a fact that the buyer didn't seriously attempt to sell their house, you may have an issue, if not - the buyer is probably entitled to his/her earnest money deposit back.

P.S. Yes, I know there's no such thing as June 31st. It's a hypothetical, like my example!

Answer 3

If the contract doesn't close by the deadline then of course the buyer gets their earnest money back!

Answer 4

Real estate laws vary by state, but a contingency is a term of the contract. if they contract is contingent upon the sale of their home, then you voluntarily agreed to that condition. The the condition buyer seller their home doesn't occur, they are not obligated to complete the purchase of your home.

Answer 5

If you are not in breach and they are, you get it. However, if they are saying a different contingency won't be fulfilled so you aren't entitled to it, that is different. The question should be whether it is refundable or non-refundable based on the lack of fulfillment of that condition. Look at your contract.