Author Topic: Should we fight for the earnest money?  (Read 7053 times)

La Bibliotecaria Feroz

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Should we fight for the earnest money?
« on: October 15, 2016, 11:54:36 AM »
The XFP and I are selling our marital home (in Denver). We got a cash offer from an investor promising a 21-day close. Within the inspection window--which we extended at their request--they decided it was not profitable after all, and want to back out and have us return their earnest money. They made no objections to the property. Just changed their minds.

In those 10 days we had it off the market, I signed a lease and moved, committing me to paying rent AND mortgage, and we lost the chance of closing before our next mortgage payment is due.

It FEELS like we should get to keep at least some of the earnest money. Our agent wants us to return it but for a variety of reasons, I have come to doubt her competence. Any advice?

Carrie

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Re: Should we fight for the earnest money?
« Reply #1 on: October 15, 2016, 12:17:52 PM »
You should get all of it, and you should also have gotten the earnest money from the first offer too. You may need to replace your agent.

Sorry the sale fell through. That sucks.

La Bibliotecaria Feroz

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Re: Should we fight for the earnest money?
« Reply #2 on: October 15, 2016, 12:37:12 PM »
They say it's almost impossible to get your earnest money back:

http://www.coloradodreamhouse.com/selling-your-home/its-almost-impossible-to-keep-the-earnest-money/

Has anyone fought for the earnest money and won? I kind of have to decide today because the idea was to re-list it tomorrow, which we can't if the earnest money is in dispute.

La Bibliotecaria Feroz

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Re: Should we fight for the earnest money?
« Reply #3 on: October 15, 2016, 12:46:52 PM »
Update 1: The earnest money was only a thousand dollars anyway. Not sure what happened there. I think maybe the agent thought we were countering and they thought we were not.

Update 2: Agent is going to fight for it. Apparently we CAN re-list, we just can't accept another contract, so we could always release it if we get a good offer while at the same time pursuing the earnest money.

Hotstreak

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Re: Should we fight for the earnest money?
« Reply #4 on: October 17, 2016, 07:48:58 PM »
You should absolutely keep it.  The whole point of earnest money is that they don't back out for no reason.  They took your home off the market for a while, which cost you money and inconvenience.  I don't see that they have any real claim to the money.


From their perspective though, I don't blame them for asking.  They're trying to make money.  Sometimes people say "yes".

La Bibliotecaria Feroz

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Re: Should we fight for the earnest money?
« Reply #5 on: October 17, 2016, 07:50:01 PM »
We got half of it. They were inside the inspection period and apparently that means they can cancel for any reason. We threw some legalese at them and they split it with us.

marty998

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Re: Should we fight for the earnest money?
« Reply #6 on: October 18, 2016, 02:56:34 AM »
Good outcome... you deserved something out of it to cover your time and hassle

Jack

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Re: Should we fight for the earnest money?
« Reply #7 on: October 18, 2016, 08:00:06 AM »
We got half of it. They were inside the inspection period and apparently that means they can cancel for any reason. We threw some legalese at them and they split it with us.

Seems reasonable. If I were buying a house and backed out during the inspection period, I would expect my money back... but then again, the reason I would give for backing out would be related to the condition of the house, not "profitability" or something else.

I'm surprised they didn't bother to invent a condition-related excuse.

Dicey

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Re: Should we fight for the earnest money?
« Reply #8 on: October 19, 2016, 10:42:28 AM »
WTF! Absent highly unusual circumstances, a $1K earnest money deposit is laughable. It's called "Earnest" money", not "We're Just Kidding" or "We haven't Run The Numbers Yet" money. The person I'd be most critical of here is your agent. Might be time to fire them, or at the very least have a chat about them bringing their "A" game to your listing. Don't let a lackadaisical or inexperienced agent squeeze you into any more of a financial bind than you're already facing. 

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Re: Should we fight for the earnest money?
« Reply #9 on: October 19, 2016, 10:51:38 AM »
I see that you were able to resolve this.  That's good. I am guessing this varies geographically...

We recently were selling our parents' home after my dad died.  The buyer backed out for no reason other than "the changes I want to make to this house are going to cost me too much."  The buyer is a very well known/liked guy in town that owns a very popular restaurant.

We asked our realtor about the earnest money.  First off, she noted that -- while they SAID they were writing a check for earnest money, they never did.  It was supposedly at their buyer-realtor's office, but it was never written.  Our realtor said that in Texas, it is almost impossible to get this money back -- even though paying for being off the market is the original intent.  She said there were so many loopholes that it really wasn't worth our time to chase it down.  We would spend more time/effort/money than it was worth trying to get it.

Long story short: We got another offer within a week by someone that was a little more earnest about the transaction.

zephyr911

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Re: Should we fight for the earnest money?
« Reply #10 on: October 19, 2016, 02:28:29 PM »
Buyers pay earnest money to prove they're serious, and a lot of people assume that means the buyer loses it by default in any number of hypothetical scenarios, which just isn't the case.

In AL, where I'm licensed, if you want earnest money to be subject to retention as a penalty, you have to add a clause in the sale contract specifying how much, and under what conditions. It's rarely done. I don't know your local laws, but it's probably fairly similar.

K-ice

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Re: Should we fight for the earnest money?
« Reply #11 on: October 19, 2016, 11:30:45 PM »
Where I am from most offers are subject to financing and inspection.

"not profitable" might prohibit financing and therefore they could back out.

I am glad you got it cleared up and received 1/2.

I hope it helps all the other $hi! you are going through. 

Heroes821

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Re: Should we fight for the earnest money?
« Reply #12 on: October 20, 2016, 07:59:24 AM »
I am not trying to advertise for the guy, but if you are in Denver I doubt you can find a realtor that can do better for you than Euan Graham.  Just google euan graham real estate. He helped me buy my first home, and helped me sell it (almost twice what I bought it for), but he's one of those realtors that go the extra mile, he explains the complex jargon in easy to understand ways. Definitely worth having a coffee with at least if you are looking to change realtors.

That tidbit aside, earnest money is supposed to be completely yours if the sale fails. 

Jack

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Re: Should we fight for the earnest money?
« Reply #13 on: October 20, 2016, 10:30:08 AM »
That tidbit aside, earnest money is supposed to be completely yours if the sale fails.

Except when the contract contained a contingency clause providing an exception for the particular circumstances of the failure.

zephyr911

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Re: Should we fight for the earnest money?
« Reply #14 on: October 21, 2016, 11:40:36 AM »
That tidbit aside, earnest money is supposed to be completely yours if the sale fails.
Is that CO state law? AL makes a point of not assigning it to either party, absent predetermined agreement based on specific circumstances. Whoever's holding it is not authorized to do anything unless and until:
1) all parties agree on disposition, or;
2) disposition is determined in court.
MS was the same, from what I could tell. It's interesting to see how things differ.

Heroes821

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Re: Should we fight for the earnest money?
« Reply #15 on: October 21, 2016, 11:48:35 AM »
That tidbit aside, earnest money is supposed to be completely yours if the sale fails.
Is that CO state law? AL makes a point of not assigning it to either party, absent predetermined agreement based on specific circumstances. Whoever's holding it is not authorized to do anything unless and until:
1) all parties agree on disposition, or;
2) disposition is determined in court.
MS was the same, from what I could tell. It's interesting to see how things differ.

Jack below my previous post has it right I believe, there could of been a stipulation in the paperwork, but earnest money is not that big of an amount compared to house cost so I'm not sure why a seller would agree to a stipulation like that.

zephyr911

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Re: Should we fight for the earnest money?
« Reply #16 on: October 21, 2016, 11:51:05 AM »
Jack below my previous post has it right I believe, there could of been a stipulation in the paperwork, but earnest money is not that big of an amount compared to house cost so I'm not sure why a seller would agree to a stipulation like that.
Well, the caveat about contract clauses is the same, and that's going to be the case anywhere, except where said clause violates applicable law, but our default dispositions are wildly different.

ender

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Re: Should we fight for the earnest money?
« Reply #17 on: October 22, 2016, 09:37:25 AM »
That tidbit aside, earnest money is supposed to be completely yours if the sale fails.

Except when the contract contained a contingency clause providing an exception for the particular circumstances of the failure.

... which, given the language of the OP, didn't seem to happen. Unless OP and their agent accepted an offer that had a generic "buyer can change mind in any circumstance clause and void the contract" type language.

zephyr911

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Re: Should we fight for the earnest money?
« Reply #18 on: October 24, 2016, 01:16:44 PM »
That tidbit aside, earnest money is supposed to be completely yours if the sale fails.
Except when the contract contained a contingency clause providing an exception for the particular circumstances of the failure.
... which, given the language of the OP, didn't seem to happen. Unless OP and their agent accepted an offer that had a generic "buyer can change mind in any circumstance clause and void the contract" type language.
Guys, this is the first Google hit for "Colorado law earnest money", from a Denver real estate broker:
http://www.coloradodreamhouse.com/selling-your-home/its-almost-impossible-to-keep-the-earnest-money/
The URL pretty much says it all, but it's an interesting article and not too long.

Landlady

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Re: Should we fight for the earnest money?
« Reply #19 on: October 24, 2016, 01:52:14 PM »
That stinks. :( Earnest money is a terribly outdated system. Almost no buyer loses their "earnest" money even if they aren't earnest because it's protected by all sorts of contingencies.
I work at a real estate startup and we've eliminated earnest money because it just doesn't work for anyone. Instead we offer transaction failure protection to the seller. In a nutshell the seller pays us a few hundred dollars and if the sale falls through we pay the seller a few thousand dollars which is meant to cover your loss of mortgage and time. Meanwhile the buyer loses out on a non-refundable offer fee that we charge to put their skin in the game.
So far all our seller clients who are dealing with developer buyers (developers are known for tying up sales without closing) have bought this insurance. It's not for everyone, but it's a great product for peace of mind if you've already moved on to paying a new house mortgage. Anyway, I'm just commenting because I feel for you and it gives me motivation to keep working our product.
Perhaps you should negotiate your agent's commission down since he/she has made this mistake.

zephyr911

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Re: Should we fight for the earnest money?
« Reply #20 on: October 24, 2016, 01:53:25 PM »
What mistake, exactly?

Cool concept BTW.

thedayisbrave

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Re: Should we fight for the earnest money?
« Reply #21 on: October 26, 2016, 09:06:41 PM »
Laws vary by state, but in NC within the due diligence period, you can back out for any reason or no reason at all as the buyer and just lose the due diligence deposit, not the earnest money.  So the seller would have to release the earnest money (well technically yes you could dispute it but as mentioned before.. is it worth it in fees/time?) However if you back out after the due diligence period passes (typically 3 weeks to conduct inspections/appraisal), then you lose both. 

Goldielocks

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Re: Should we fight for the earnest money?
« Reply #22 on: October 27, 2016, 02:39:36 AM »
WTF! Absent highly unusual circumstances, a $1K earnest money deposit is laughable. It's called "Earnest" money", not "We're Just Kidding" or "We haven't Run The Numbers Yet" money. The person I'd be most critical of here is your agent. Might be time to fire them, or at the very least have a chat about them bringing their "A" game to your listing. Don't let a lackadaisical or inexperienced agent squeeze you into any more of a financial bind than you're already facing.
+ 1

Way too low if you were moving out for them based on it..  And the ones that need to fight for earnest money are THEM. It is yours until you give it back, IMO.  When there is doubt, the seller can choose to hold on to it.   I think you had enough expenses that a judge would have let you keep the $1000. Given their reason.

Also hold for inspection condition should have a minimum, like issues found must exceed 10k in order to cancel the offer due to condition.

Jack

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Re: Should we fight for the earnest money?
« Reply #23 on: October 27, 2016, 09:53:37 AM »
ETA like the OP I was lookingbat a rental place and almost locked myself into a lease. Would have been pissed (mostly at myself) if I did that. Now I will wait until its a 100% done deal before getting another place. Is there anyway you can get out of your rental OP? Your house sale falling thru might be enough to break your lease.

In general, what you need is for every contingency you allow in the contract to sell your old house to be matched by a contingency in the contract to buy (or rent) your new house.... or the flexibility not to need them.

I don't plan to ever sell a house (I plan to convert my home to a rental whenever I move, and plan to only ever buy properties with that strategy in mind), but even if I did, I still would refuse to enter into a situation where paying the mortgage on both the old and new properties simultaneously would be a hardship and a "sell the old house before closing on the new one" contingency would be necessary.

La Bibliotecaria Feroz

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Re: Should we fight for the earnest money?
« Reply #24 on: October 27, 2016, 11:38:30 AM »
...
ETA like the OP I was lookingbat a rental place and almost locked myself into a lease. Would have been pissed (mostly at myself) if I did that. Now I will wait until its a 100% done deal before getting another place. Is there anyway you can get out of your rental OP? Your house sale falling thru might be enough to break your lease.

I have two boys, ages 4 and 5, and moving out, back in, and eventually out again, would have been far too disruptive for them. They're having enough trouble as it is--poor Big Brother can hardly sleep at all. I think the house showed better empty anyway, and we got a new, much higher contract almost immediately. Fingers crossed.

...
Way too low if you were moving out for them based on it..  And the ones that need to fight for earnest money are THEM. It is yours until you give it back, IMO.  When there is doubt, the seller can choose to hold on to it.   I think you had enough expenses that a judge would have let you keep the $1000. Given their reason.

Also hold for inspection condition should have a minimum, like issues found must exceed 10k in order to cancel the offer due to condition.

Sellers do not receive the earnest money. It is held in escrow. Then if there is a dispute, you have to go to mediation months later--and meanwhile, you can't sell the house. Since we have a new contract on it, it was much better for us to reach agreement.

SnackDog

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Re: Should we fight for the earnest money?
« Reply #25 on: October 27, 2016, 12:00:34 PM »
I once backed out of a Texas purchase agreement during the inspection period.  The owner decided he didn't like that and refused to release the $3,000 earnest money.  We eventually ended up in small claims court.  He claimed I backed out for no reason and it cost him $3,000.  I provided documentation that I backed out legally under the conditions of the agreement and that the seller immediately sold it to another buyer and thus had no loss.  First we spoke to an arbitrator who looked it all over and asked if we would like to split the money. We both said we would prefer to take our chances with the judge: all or nothing.

The judge didn't read anything. He heard both our sides then said "You both seem like nice people and I'm sure neither side meant any harm at all, so I really can't decide. I guess I'll just split it 50-50."

zephyr911

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Re: Should we fight for the earnest money?
« Reply #26 on: October 27, 2016, 01:00:28 PM »
I once backed out of a Texas purchase agreement during the inspection period.  The owner decided he didn't like that and refused to release the $3,000 earnest money.  We eventually ended up in small claims court.  He claimed I backed out for no reason and it cost him $3,000.  I provided documentation that I backed out legally under the conditions of the agreement and that the seller immediately sold it to another buyer and thus had no loss.  First we spoke to an arbitrator who looked it all over and asked if we would like to split the money. We both said we would prefer to take our chances with the judge: all or nothing.

The judge didn't read anything. He heard both our sides then said "You both seem like nice people and I'm sure neither side meant any harm at all, so I really can't decide. I guess I'll just split it 50-50."
That's effing outrageous. What a lazy shitbag.

lampstache

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Re: Should we fight for the earnest money?
« Reply #27 on: November 17, 2016, 09:57:43 PM »
It's my understanding the buyer should get their earnest money back if they back out of an agreement for any reason in a prescribed contingency period. Now, were it even 1 hour outside the 10 day period they had to back out they would be out of luck. The fact you got something is great! If I was the buyer though I would have pushed harder for it.

Goldielocks

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Re: Should we fight for the earnest money?
« Reply #28 on: November 18, 2016, 12:16:58 AM »
It's my understanding the buyer should get their earnest money back if they back out of an agreement for any reason in a prescribed contingency period. Now, were it even 1 hour outside the 10 day period they had to back out they would be out of luck. The fact you got something is great! If I was the buyer though I would have pushed harder for it.

Then why require earnest money at all?   Earnest money is partially to hold your interest in the property, in exchange the vendor may incur some costs by delaying a sale to others, if you back out.

Next, there are conditions on it, like subject to financing, subject to home inspection with identified problems over 15k, etc.  that are for the buyers benefit, which is why a large earnest money with minimal conditions / condition period is what the vendor wants.

lampstache

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Re: Should we fight for the earnest money?
« Reply #29 on: November 18, 2016, 11:17:44 AM »
It's simply the way the real estate world has worked. To some degree it is, what it is. I completely agree, why give earnest money at all until the contingencies are squared away!

As a seller you don't have to agree to any contingencies for the buyer if you really don't want to (outside of mandated ones such lead based paint testing), but that would make it much more difficult to sell. Expenses you incur by not having the opportunity to sell your home to someone else because you're in a contingency period of an offer that's been accepted is part of the risk of selling/buying property. 

clarkfan1979

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Re: Should we fight for the earnest money?
« Reply #30 on: November 20, 2016, 03:12:41 PM »
I'm glad that you ended up splitting it. I would try for higher earnest money next time. You signing a lease doesn't really apply. However, the house being off the MLS does apply.