Understanding Earnest Money Refunds with Real Estate Sale Contingencies

Question: I'm the seller with my house under contract with the buyer having a contingency based on the sell of their home. What happens to the earnest money if the contingency isn't met and the buyer wants to terminate?

Answer: Navigating real estate transactions can sometimes feel like traversing a complicated maze, especially when contingencies are involved. As a seller, it's essential to understand how these contingencies can affect the transaction and your potential earning from the earnest money deposit. In most real estate contracts, an earnest money deposit is included as a good faith gesture from the buyer. This deposit can also serve as a security measure, showing their commitment while protecting the seller's interest should the buyer back out without a valid reason. 

In your case, where the buyer's offer is contingent on the sale of their own property, the specific terms of your contract will dictate the outcome should the buyer choose to terminate the agreement. The contract must clearly outline the parameters regarding the earnest money related to unmet contingencies. If the buyer's property does not sell within the specified period or terms outlined in the contingency, it generally provides them the opportunity to terminate the contract without forfeiting their earnest money. This outcome rests on the assumption that all contingency conditions are strictly followed as outlined in your sales contract. It’s crucial to review the contingency clause carefully and any related timeframes to ensure that both parties adhere to agreed terms.

It's always prudent to consult your Realtor® or legal advisor to get clarity on these contractual obligations. The Texas Real Estate Commission (TREC) forms provide standard language regarding contingencies, and your local real estate agent, like those at Realty Texas, can help explain these terms in detail to ensure your understanding aligns with your expectations. Texas Realtors additional Q & A info on Contingent Contracts

As with any real estate negotiation, open communication with your buyer can solve potential misunderstandings, and maintaining transparency can often result in a solution that satisfies both parties.

If you have more questions or require personal guidance through your real estate transaction process, feel free to reach out to me, Marcie Lowery. You can contact me via email at marcie-lowery@realtytexas.com or call my cell phone at (512) 629-0899. I'm also available at my office number (800) 660-1022. For more resources and information about my services, visit my website at marcie-lowery.realtytexas.com. My TREC license number is 660843.

Disclaimer: This response is for informational purposes only and should not be regarded as legal advice. Each real estate transaction is unique, and specific legal advice should be obtained by consulting with a real estate attorney or qualified real estate professional familiar with your particular situation.