When to relist when a deal falls apart

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02/12/2015 | Author: Editorial Staff

My seller’s contract didn’t close by the date specified in the contract. He and the buyer blame each other, and both want the earnest money. The contract hasn’t been terminated yet, but my client wants to put the property back on the market. What should I do?

Have your client talk to an attorney about the legal liabilities of proceeding with a sale without the termination of the original contract. Remember, there are two ways to formally terminate a contract:

  • The parties can agree to terminate and sign a document like Release of Earnest Money (TAR 1904) that releases both parties from further obligations under the contract.
  • A judge can order a contract termination.

Get more answers to legal questions on texasrealestate.com.

Categories: Legal
Tags: legal faq, sellers, contracts


Rick DeVoss on 02/13/2015

Earnest Money is a broad topic that needs to be taught by an attorney.
Ask your favorite title company attorney to have a class for all the local Realtors in your area.  ...Let’s make sure that the newer agents understand.

Recently, I received an offer with no evidence that the buyer had written a check for either Earnest Money or Option Fee.  ...Does anyone think that is the ‘right way’ to do business?
The buyer’s agent sent him the ‘offer’ to sign on Docusign, so it appears that she did not even meet him in person, and doesn’t know where he lives.  ~Is this practice really “representing the buyer”...?  We all know that people don’t read what they sign, so how do you make sure that the client really understands what he is signing if you don’t go over every page with him??

Are some of the readers on here confusing ‘Earnest Money’ with ‘Option Fee’...?
You don’t present an Option Fee check so that you can “not close on time.”  The Option money is designed to allow the buyer to terminate the contract in the first few specified number of days.  It is ‘refunded’ to the buyer at closing (if so marked), and is not part of the Earnest Money.  It can be forfeited right up front, so it is not part of the Earnest Money.  ~These are two totally different concepts.

I will agree that we should all ask the buyer for more Option Fee money.  Since the MLS rules force you to mark the listing as “pending” once the contract is executed, we all know that showing activity will stop, and that means the house is off the market in the seller’s eyes.  So let’s make it more expensive for the buyer to take the house ‘off the market’ for a week or 10 days.  (Are any of you splitting the Option Fee with the seller?)

But the question was about a deal that did not close on time, and THAT is way past the Option Period.  (I hope!)  ~Now we are talking about what it costs the buyer not to close after he said he was going to close beyond the Option Period.  Perhaps we all need to make that more expensive for the buyer as well.
Why are the brokers in this industry making it so easy for buyers to waste our time?  ...Why are we not getting paid for all the time we spend negotiating an offer, and processing a contract?

Attorneys don’t do that.  They get paid for their time spent when they work for you.  Most other professions do, too.  ...Does your doctor not charge you for the office visit if you elect not to have the surgery??  ...Does your CPA not charge you for sorting through your expense receipts if you decide not to file the tax return??  ...Does your mechanic not charge you a diagnostic fee if you decide not to get the engine repaired??  ...Does your pros______ ...(never mind)...

Realtors seem to be the only professionals who have demonstrated a willingness to work for free.  ~Why??  ...Maybe our ‘percentage’ of the sales price could be lowered if we were paid by the hour!  ...I’d like to have a nickle for every hour I have spent over the years, instead of the ‘fat checks’ I get at closings.  ...Maybe the public would respect us more if we charged for our time and services.  (You can write it in to your Listing Agreements, and your Buyer’s Rep Agreements.)

Shock yourself into the real world by keeping track of the number of hours you actually spend on each given transaction.  ~Once you see what it adds up to, maybe you’ll either start charging per hour,  ...or you’ll get out of the business.

(I wish I knew how to use ‘Italics’ in this blog…)


Lilly Hughes on 02/13/2015

I think it’s important to know why it didn’t close by the date in the contract and is it just a matter of days. Time is NOT of the essence on the closing day; many believe it’s a gray area. Is there a reason why it can’t be or they don’t want to extend the closing date.
On the subject of earnest money. The earnest money needs to go to the title company so that it is credited against buyer’s down payment. If you want to make it more costly to the buyer to get out of a contract, raise the option fee. The seller does get that money and keeps it if the deal doesn’t close.

Sher Dye on 02/12/2015

You are very special Peter I can tell. That has already been addressed. I misspoke and wrote the wrong thing. Not perfect and we are ALL here to learn.

Peter M Boesel on 02/12/2015

Sher Dye

What exactly do you mean when you say ‘ask your sellers to hold on to the check’?  They don’t ‘hold’ it, the title company does.  When speaking in legalities, you have to be careful how you say what you say!

Rick DeVoss on 02/12/2015

Maybe we need a whole course in Earnest Money issues for CE.

It seems like many people are missing the point of the question, and the issues involved can be very complicated.  I always like to work with a title company that has an attorney on site that can answer such questions.  The guys (attorneys) at the title company where I like to go will speak with your client for free, and tell them what the ramifications of the law are.

The question above was posed by the Agent!  “What should I do?”  Therefore the answer should address the agent’s responsibilities.  His/Her first responsibility is to the seller, and he/she should say “Come with me and let’s go talk to an attorney.”
Once the attorney gives the seller good advice, and outlines the legal consequences of his actions, the seller may decide to go to court, or to move on with his life, and refund the E.M.  Either way, the Listing Agent should not put the house ‘back on the market’ until the first contract is resolved.
Maybe we should consider taking a nominal amount of Earnest Money so that it is really not a big issue to anybody.  ~What do you think?    ($10)
Maybe we should insist on a large amount of Earnest Money so that the buyer will get serious about his actions and decisions.  ~What do you think?
Maybe it should be automatic that the Earnest Money is split by the two Agents since they are the ones doing all the work when a contract falls apart.  ~What do you think?
What is the REAL purpose of Earnest Money in the first place?  Once you define its purpose, then you will know how large the amount should be.  If the buyers are the ones who have all these loopholes, and ways of getting out of a contract, and the sellers have no way of getting out of one, then maybe the Earnest Money should be large enough to actually penalize a buyer for terminating the contract.  And the forms should outline that half goes to the seller, and 1/4th goes to each agent.  ~What if the amount was $10,000…?
(5% down on a $200,000 house would be $10,000, so why not make the E.M. equal to the Down Payment, and put it all up front to show that you are a serious buyer?  The buyer has to put that much cash down in a few weeks anyway…)
Our contracts could easily be modified to say that it is split between the seller and the agents upon a default by the buyer.  Default is already defined in the TREC form.  So why are the two parties not in agreement over what caused the default?  Is it not clearly stated in the contract?  Does a judge need to interpret the scenario?

Sometimes it seems like the questions and answer provided hereon are overly simplified, and NOTHING in the real world of Real Estate is simple…!


Lee Sloan on 02/12/2015

The Buyer still has an interest in the property.  If Seller places the home back on market and should receive another offer,  there could be a cloud on the title.  Better have Seller contact his attorney and advise Buyer’s agent to do same.

Sher Dye on 02/12/2015

Never would I have the EM check made out to the Seller. It always goes to the title company

Irene Pence on 02/12/2015

Charles Nuber is completely right in advising Agents to encourage their Seller to return the EM and move on.  There are many issues provided for in the TREC contract that could delay a closing besides loan approval, from HOA to Title or survey objections.  Regardless,  as long as the EM remains in escrow, the Buyer still has a vested interest in the contract and the Seller cannot sell and the title company won’t close it until the EM is released.  Get with the other agent and counsel and encourage your clients to Agree to Disagree on the performance issue and split the EM refund to the Buyer/Seller.  If the Buyer won’t agree to that, refund the entire EM to the Buyer, put the home back on market and move on.  The time that the home sits on market during this debate, and the loss of other Buyers as a result thereof,  is far more costly that the EM.  Absent a costly court order, there is a valid enforceable contract until both parties mutually agree to terminate and the EM is disbursed as mutually agreed to by those parties.  So come to a compromised agreement and properly terminate the contract before moving to another Buyer.  If the Buyer won’t compromise, Seller is better off to refund the EM.  Everyday you allow this dispute to continue, you risk the loss of another Buyer.

Koehler Real Estate on 02/12/2015

The situation between the buyer and seller did not provide the details of the transaction as to who defaulted, other than stating both parties blame each other.  The seller wanting both the earnest money back and a quick re-listing of the property back on the market when a termination hasn’t been completed yet,  and both parties are in disagreement as to who’s responsible for the default indicates to me that the seller is in need of legal advice regarding this situation.  The default provisions of the contract outline the remedies for both buyer and seller, which are a)specific performance, other such relief, or both, or b)keeping the earnest money.  Upon the occurrence of the remedy or remedies, both parties shall be released which works well only if both parties agree. 
As a practical matter involving a contract where there’s a dispute regarding who defaulted, if the seller wants to get the property back on the market quickly, it’s quite possible his best alternative is to relinquish his claim to the earnest money in return that all parties are released from each other so that the seller can move on.  Of course there’s other issues that may be at play in these situations that may motivate the seller to pursue his rights and remedies under the default provisions of the contract.  The agent or broker should do their best to make sure their client is informed and advised to seek legal counsel particularly in a situation that becomes adverse.

Richard Weeks on 02/12/2015

Sher Dye are you saying you have the earnest money payable to the seller and not a title company?

Bill Austin on 02/12/2015

With what was posted it seems many of the previous comments made assumptions on the “WHY” it didn’t close. There are many scenarios that could play into “WHO” is entitled to the EM, including the agent (half). If it goes to litigation the loser could be subject to treble damages.
On another note section 4 of the contract has some bearing on a “financing” issue all the way to closing day regardless of what my have been written into a 3rd Party Financing & Credit document.

elana ingram on 02/12/2015

It’s the responsibility of the buyers agent to make sure their client can get financed within the date indicated on The Third Party Addendum.  If you see your clients financing may fall through, terminate the contract and request The Release of Earnest money refunded to the buyer.  The buyers agent should have amended the The Third Party Addendum to avoid the pitfall of risking the earnest money.

Desiree on 02/12/2015

Thanks ! This help me a lot !

Sher Dye on 02/12/2015

I find it easer to just ask my Sellers to please hold on to the check until closing. Some like that idea and others don’t because the check actually belongs to the Seller if the Buyers back out. Why should my Sellers be put out and not compensated if the Buyers back out. It seems like Buyers always have the upper hand in a contract

Greg Foster on 02/12/2015

I have had deals fall apart when the buyer’s loan doesn’t go through. The finance addedum covers that scenario and the seller should usually return the money.  Read and understand the addendum.  Understanding both parties will be upset, good negotiation can help keep the deal together for another lender, if is truly feasible.  If not, certainly advise sellerto refund so the seller can move on to another buyer. Of course, best to cover that possible scenario when explaining the finance addendum initially and not just sending it for electronic signature w/o review. Clients typically do not read when signing docs, particularly with e-signs.

Charles Nuber on 02/12/2015

Interesting enough I just took this class yesterday from a litigation attorney! Thank you John Holland!  If the seller’s goal is to sell the house then give the earnest money back to the buyer and get that termination so you can move forward with the sale. Every scenario of litigation cost way more then the earnest money we see applied to contracts. One suggestion was to go up on the earnest money negotiation so that the buyer will want the earnest money back and would be more willing to terminate the contract then to loose out on getting it back. Yes the contract calls for the seller to keep the earnest money but keep your eye on the ball! Give it back so you can move forward with the sale! a contest over earnest money could cost way way more then the earnest money amount!

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The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

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