You probably know the purpose of the earnest money deposit—to assure sellers that buyers are serious about buying their property. However, what if the buyer’s loan doesn’t come through or changes his or her mind? What should the seller do, and more importantly, can a seller do anything?
Understand The Contingencies
Contingencies in real estate contracts offer various means for buyers to renege on a sale legally, says a renowned real estate lawyer in Denver, CO. That said, as a seller your have to pinpoint, try to curtail, and close any potential backdoors for buyers. This means that if your buyer suddenly doesn’t want to go through with the deal, he or she can’t look to a contingency to back out of the deal. You could even negotiate with the buyer to waive specific contingencies if you have an in-demand property. If your buyer doesn’t close the deal even after you’ve fulfilled all contingencies, you could keep the earnest money deposit.
Encash The Check
Usually the earnest money deposit is held in escrow, but in check form and not cash. You could require that the buyer’s real estate agent cash in the check. Even if the cash would still be held in escrow until closing or if the sale falls through, should the latter occur, it would prevent your buyer from getting all the money from the account the earnest money deposit check was written from.
Pay Attention to The Contingency Timeframes
Sellers and buyers need to meet the contingencies within a predetermined period. If one didn’t satisfy a contingency within the predetermined period, that party would be considered at default. For example, if a buyer fails to finish an inspection in 18 days, you might be entitled to keep the deposit. You could likewise add a clause in your purchase agreement called “time is of the essence” to require your buyer to close on a specific date. If your buyer fails to close the deal within the deadline, the earnest money deposit goes to you.
If you’re planning on selling your home, make sure to get legal advice from an experienced real estate attorney. Your attorney would help you draw a fair and reasonable contract and protect your interest.