The real estate business is one that’s bolstered by the trust of the parties involved, yet situations can occur that lead to such trusts being broken. The potential for such events to happen is the reason that the concept of earnest money has become standard for most agreements, which basically boils down to being a deposit of good faith.
The Concept
This money is placed in an escrow account or trust, often held by the title company, by the party purchasing the real estate. If the seller ends up backing out of the deal, the would-be buyer receives an earnest money refund. However, unless a legitimate reason exists for the buyer to back out, the money in escrow will be awarded to the seller if it’s the buyer who chooses to break the agreement.
Documenting Contingencies
The usual reasons why a buyer might back out usually involve their inability to obtain financing or discovery of problems within the real estate they’re purchasing. Such issues and any other contingencies need to be clearly stated in the purchase agreement. For example, something as simple as stating in the contract that the deposit can’t be cashed until the seller accepts the offer needs to be included.
The time frame for an option period can be as short as five days but may be as long as 20 to 30 days. Using an attorney to craft an acceptable discovery period is recommended, with some buyers and sellers preferring an expedited schedule as opposed to a more drawn-out process.
All real estate agreements have an option period for such issues, which legally allows for contract termination during the agreed-upon time. Assuming a legitimate reason exists for ending the transaction, the buyer is entitled a refund as long as they end any such deal during the option period.
The Value of Legal Help
Without such assistance during the negotiation process, the other party could make a legitimate claim that since the contract in question doesn’t cite a particular contingency, they’re entitled to the earnest money. Legal protection is invaluable in such circumstances since it clearly spells out when each side will be entitled to an earnest money refund.
Using such legal assistance beforehand will avoid the prospect of litigation, where legal costs can dwarf the expenses for such earlier help. In addition, it avoids the prospect of losing in court, whereby that party is required to pay all costs involved.
Know Where to Go
The Farah Law Firm knows all aspects of the law when it comes to earnest money and can aid clients in making sure that they don’t miss out on the chance to obtain their earnest money refund. Contact The Farah Law Firm for help if you’re thinking about a real estate purchase.
