Real estate transactions are complicated matters. If you’ve already given a deposit to a seller and a problem arises, who holds the earnest money?

Earnest money is the deposit a buyer gives to a seller before a real estate transaction is finalized. The money is held in an escrow account by the seller during this time. If there is a dispute, the money will remain in the escrow account until the dispute is settled. If the buyer has a legitimate reason to walk away from the sale, such as if the home fails inspection, the earnest money will be returned to the buyer. However, if the buyer does not have reason to back out, the seller will keep the earnest money. The best way to protect your earnest money during a real estate transaction is to write contingencies into your purchasing agreement. In doing this, you can site contingencies if you change your mind about purchasing a property and get your earnest money back.

To have the real estate transactions and disputes lawyers of the Heyman Law Firm review your case for free, call us now at (410) 305-9287.

Who Holds the Earnest Money During a Real Estate Transaction Dispute?

During a real estate transaction, the earnest money, or the deposit a buyer gives a seller before the transaction is finalized, is held in an escrow account by the buyer. If a dispute arises, what happens to that money?

The earnest money will generally stay in an escrow account until the dispute is resolved. There might be several reasons for a real estate transaction dispute. For example, if you require certain items to be addressed by the seller before purchasing, and the seller refuses to address those issues, a dispute might arise. It is important to carefully review the terms of your purchasing agreement so you know when you have a legitimate reason to walk away from a sale and recover your earnest money.

Escrow is the time period during which certain conditions are met before a sale. This is when inspections generally take place. During this time, the seller will hold your earnest money. Earnest money is given in good faith, so it is harder for buyers to change their minds about purchasing a property, lest they risk losing their deposits.

Suppose there is a dispute about the transaction after earnest money is given to a seller. In that case, a buyer might have to negotiate new terms to recover their deposit or, in certain circumstances, go to court over the matter.

When Can You Recover Earnest Money Following a Real Estate Transaction Dispute?

If you gave earnest money to a seller before purchasing a property and then realized that you no longer want the property, you might be able to recover your deposit. There are only a few situations where this is a possibility.

The Property Doesn’t Pass Inspection

The most common reason why buyers want their earnest money back is that a home doesn’t pass inspection. This is usually a contingency in all real estate transactions. If the home doesn’t pass inspection, or the seller refuses to fix certain issues with the home prior to purchasing, you might be able to get your earnest money back without having to go to court.

The Property is Appraised at a Lower Price

It is wise to include appraisal contingencies in purchasing agreements. That way, if you get the home appraised and the appraisal price is far lower than the selling price, you can likely walk away from the deal without losing your earnest money. If homeowners do not consider including this contingency in their purchasing agreements, they might be locked into a bad deal.

The Buyer Cannot Get Financing

Another contingency to include in a real estate transaction agreement is that for financing. This contingency will state that if you cannot get a mortgage for the property, you do not have to purchase it and can recover your earnest money. In addition to including a financing contingency in your agreement, it is important to get pre-approved for a loan before you enter into escrow on a property. That way, you will have a clearer idea of the type of home you can afford. If you do not have a financing contingency and are not approved for a mortgage, you will likely be unable to afford the home and could lose your deposit.

The Property Has Title Search Issues

If there are issues that come up with a title search of a property, such as public records errors, liens against the property, unknown easements, incorrect legal descriptions, or breaks in the chain of title, the sale of a property can become extremely complicated. In these situations, buyers are often able to terminate the real estate transaction and get their earnest money back.

When Can’t You Recover Earnest Money Following a Real Estate Transaction Dispute?

If you do not have a legitimate reason to walk away from a sale, the seller will likely keep your earnest money.

Earnest money is given in good faith as a sign that a buyer intends to purchase a property. A change of heart is not reason enough to decide you will no longer buy a home. To ensure your earnest money is protected in an escrow account during the purchasing process and to ensure you will recover your earnest money if problems come about, our real estate transactions and disputes lawyers will write the appropriate contingencies into your purchasing agreement. With such contingencies in place, you will not have to risk losing your earnest money should a legitimate reason arise for you to terminate the agreement.

Call Our Attorneys for Help with Your Case Today

You can call our Baltimore real estate transactions and disputes lawyers at (410) 305-9287 to set up a free case assessment with the Heyman Law Firm.