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  • Earnest Money and Terminating a Contract

Earnest Money and Terminating a Contract

February 25, 2022 | Texas REALTORS® Staff

My buyer clients and the sellers agreed to and signed a contract on a property. However, my clients changed their mind and no longer want to purchase property. My buyers can walk away since they haven’t paid the earnest money or option fee, correct?

No. If the contract has been properly executed by all parties, there is a binding contract even if the buyer has not deposited earnest money. Your clients are not allowed to walk away.

Earnest money is not necessary to make a valid contract. Earnest money is a buyer-performance item required to be deposited after a contract is fully executed. A contract could become effective even if no earnest money is required in the agreement.

Your buyers are still required to deposit the earnest money within the time required for delivery. If the contract calls for a termination option and your buyers timely pay for that option, they would then have the right to terminate the contract within the specified time period.

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Wigs TimingLisa PennAnn DenhamSonya RPamela Poitevent Recent comment authors
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Terry Popham
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Terry Popham

So what are the sellers remedy to this situation? What if the buyer won’t sign a termination? What about compensation to the seller for the buyer not holding up their end of the deal?

Reply
4 months ago
Candy Crisman-Lopez
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Candy Crisman-Lopez

A sellers termination does not require the buyer to sign. Usually, we need the buyer to sign the release of earnest money but in this scenario, there is no earnest to release.

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4 months ago
Sonya R
Guest
Sonya R

The contract can be terminated by the seller. In the contract, if there is no response and the seller makes a demand, then they can get the earnest money back. The problem lies if the buyer also makes a unworthy demand, which is what I am facing. Buyer has not closed, nor cancelled the contract according to the 1-4 Contract. The broker, who is also the agent, is never available and non responsive, but managed to send a release of earnest money for his client, the buyer, who defaulted, after my client, the seller, made a demand. My client has… Read more »

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1 month ago
Regina
Guest
Regina

I realtor/buyer terminated a contract beyond the option period when undisclosed mold was discovered. The contract was terminated and the house was sold to another party. I am still fighting for the earnest money.
Do I have any recourse?

Reply
4 months ago
Christie W
Guest
Christie W

Do you have proof that the seller knew about the mold? Why did your buyer not have a mold inspection during their option period? If you can’t prove the sellers knew about the mold, I don’t think you have any recourse since you were given an inspection/option period.

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4 months ago
FYT
Guest
FYT

My understanding is that a seller cannot give clear title to a property that has EM still being held. Have been advised to not even put a property back on market until EM Is resolved. But since it was past option that opens another aspect. Personally had this issue about 10 years ago and the title company wouldn’t accept a new contract before EM was settled. Buyer lost his job the day before closing so EM was in dispute and buyer wouldn’t sign release.

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4 months ago
Pamela Poitevent
Guest
Pamela Poitevent

The Buyer will have to take the necessary steps to try to get the earnest money back. Get a real estate attorney is your advise to the Buyer.

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4 months ago
Alfredo Yanez
Guest
Alfredo Yanez

If seller feels it’s is in his best interest for the byer to back out of the contract because he has received a better offer, what would be the procedure?

Reply
4 months ago
Peggy Dean
Guest
Peggy Dean

Buyer can back out during the option period and get the earnest money back. Seller can take a back-up contract in case the buyer can’t close but a seller can’t back out of a contract unless there is some kind of default on the part of the buyer.

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4 months ago
Cheryl
Guest
Cheryl

I have had 3 Keller Williams agents do this. Two never delivered EM or option money. One finally delivered and terminated properly during option after I explained they were legally obligated to perform according to the contract. I even spoke to the prior 2 agents female supervisor at KW and she refused to tell her agents what they were required to do per the contract. This is a big problem in our industry.

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4 months ago
15 yr agent
Guest
15 yr agent

Not the issue with the EM delivery but an issue with buyer not closing on time and agent not doing amendment to extend and then buyer deciding not to close. This was an EXP agent and their broker advised the buyer to sue the seller for the EM. Broker had problems reading and understanding that when a buyer has not closed by the date of closing and then tries to cancel after the contract closing date, the buyer is not the one who gets the EM but evidently the EXP broker doesn’t understand the contract either. Some brokers and supervisors… Read more »

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4 months ago
Grace S
Guest
Grace S

I believe someone needs to go back and take some classes. I am shocked this question is even being asked.

Reply
4 months ago
Alfredo Yanez
Guest
Alfredo Yanez

what is your comment? the scenario is posted for people to comment not to judge

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4 months ago
Nancy
Guest
Nancy

Does the option need to be on The release form

Reply
4 months ago
Robert Blair
Guest
Robert Blair

Get real.

Nobody is going to pursue legal action enforce somebody to deposit $4K in earnest money .

It’s a waste of time.

If the money has not been deposited, there’s nothing on the line for the buyer if they walk away.

Reply
4 months ago
Richard Beaty
Guest
Richard Beaty

Small claims court for the earnest since they didn’t deliver the option money, so there was no option period, so no unrestricted right to terminate. Seller could sue and most likely win.

Reply
4 months ago
Stuart Scholer
Guest
Stuart Scholer

My goodness. I can’t make out who is who in most of these questions. Too vague. I also hope these folks are not Agents.
A lot of legal advice is being given here.

Reply
4 months ago
Mesia D
Guest
Mesia D

There’s a form for that. TXR 1950 allows the Seller to terminate the contract due to the earnest money not being delivered. In my mind, why waste time…get this house back on the market ASAP!

Reply
4 months ago
Ann Denham
Guest
Ann Denham

I am a buyer who got a cash contract with a TREC 1-4 signed by seller and turned into title a few days ago. Now the seller got a higher offer and signed a contract with that party as well. Is the second contract legal? Can a seller just back out of a contract that’s already been sent to title, because a higher offer came along? The deceased party had his will probated and the wife is 50 percent owner of the home and the 2 sons get 1/3 each of the other half. ( wife gets 2/3 total). The… Read more »

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29 days ago
Lisa Penn
Guest
Lisa Penn

We recently put an offer on a house and are out of our option period but set to close in 2 weeks. We have since found another property that we prefer and better suits us. We would like to pullout of the first offer and are willing to lose our earnest money but are worried there may be further legal consequences. Can the sellers sue us? There was a #15 Default included in our contract. Thanks for any guidance

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26 days ago
Wigs Timing
Guest
Wigs Timing

Last minute, we had the lending company tell us that they couldn’t help us after all, are we entitled to that earnest money back?

Reply
5 days ago

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