Real estate law can be complex, especially when dealing with typical agreements and financial transactions. Earnest money conflicts can happen when a realty contract does not adequately document how such funds should be handled as well as the seller’s intent. The best way to prevent any conflicts over earnest money is to have an experienced residential real estate lawyer prepare a contract addressing any necessary issues. Rather than facing a legal battle over deposit funds, working with a knowledgeable real estate attorney to ensure financial details are properly outlined can save both money and headaches.

What Are Earnest Funds?

According to real estate attorneys, earnest money funds are basically a deposit on a property being offered for sale. This money is put into an escrow account where it stays while the details of the sale are finalized. Giving a seller earnest funds means the buyer agrees to purchase the property once negotiations are completed. In return for these funds, the seller agrees not to sell the property to anyone else. When the sale of the property is finalized, the earnest money as well as any earned interest is applied to the purchase price.

Are Earnest Funds Refundable?

Residential real estate lawyers advise clients that generally speaking, if a seller backs out of a sale for some reason, the earnest funds are returned to the buyer. On the other hand, when a buyer backs out of a sale after the “option period,” unless it is stated otherwise in the financial agreement, the earnest money legally goes to the seller. The option period is typically a short period of time (10 to 14 days) immediately following the signing of a purchase agreement and providing the earnest money. This time is normally used for a home inspection and to address any topics of concern, giving the buyer a chance to get their earnest money back if any issues cannot be resolved.

It is extremely important to document all specifications pertaining to the collection and refund of earnest money, length of the option period, and any other rules as to when the seller will and will not return earnest funds. Lawyers who help clients in this field point out that these specifics should include handling of any other circumstance, such as the failure to obtain financing or other problems that could prevent a buyer from actually purchasing the property. It is essential that a buyer completely understand any rules they are agreeing to regarding earnest money to prevent conflicts that could end up in court.

Disputes Over Earnest Money Arise

According to real estate attorneys, the most common cause of disputes over earnest money is when a buyer cannot obtain financing - or if problems are found with the property and the buyer refuses to follow through with the sale after the option period has expired. In many cases, a buyer simply did not understand all parts of the purchase agreement or the urgency to resolve financing before expiration of the options period.

Avoiding conflicts in a real estate transaction requires a carefully written purchase contract that should be prepared by lawyers experienced handling real estate transactions. Real estate law is very detailed, which means that both buyers and sellers must understand and document all agreements. Real estate lawyers can help buyers and sellers with the planning required to avoid disagreements over earnest money. These skilled lawyers can help prevent the necessity for an expensive resolution to a preventable conflict!

Watson Law Firm

1450 Copperfield Parkway, Suite 300

College Station, TX 77845

(979) 431-5009

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