Residential real estate transactions expose everyone involved to a degree of risk. Sellers have to worry about spending weeks in between properties. Buyers have to commit themselves financially before the property even undergoes an inspection.
Typically, buyers save to put together a down payment. A portion of those funds may become their earnest money. Earnest money is capital held in escrow during a real estate transaction. If the buyer cancels the transaction, the seller could potentially retain some or all of the earnest money as compensation for the expenses generated by the buyer’s change of mind.
How can those attempting to buy real property protect their earnest money?
Contingencies allow for penalty-free cancellations
The first and most important means of protecting earnest money is for buyers to only make offers on properties that they sincerely intend to purchase. However, their opinion of the property could change due to inspection or appraisal results. Other times, they may have issues with financing the property.
In such cases, contingencies included in the initial offer can make a major difference for the buyer. Contingencies provide legal protection for buyers in scenarios where they have a justification to cancel the closing. The inclusion of appropriate contingencies related to inspections, appraisals and financing in an offer or purchase agreement can protect the buyer’s earnest money if they have to cancel the closing after making the offer.
Having support throughout a residential real estate transaction can help people ensure that they have appropriate protection. Buyers who have assistance when drafting offers and reviewing purchase agreements are less likely to lose their earnest money due to a technical oversight.