The purchase contract will gpverm what happens. If it is not in writing, then it won't happen
Are you a principle in this transaction, or is this hypothetical?
Based on your profile I am going assuming that you are a first time buyer (if that is wrong, then please repost)
When you make an offer on a property, the seller wants to see that you are serious. Part of that demonstration is showing the seller that you are able to pay for the property, usually a letter from a lender stating you are qualifed.
Also, it is customary for a deposit to be made. Different areas of the country have different customs and terms. This initial deposit in California, where I work, is normally three percent of the purchase price. The buyer can offer more, however three percent is sort of the minimum.
This deposit means a couple of things. While your offer is being considered your Realtor (representing you, the buyers) holds onto your check. Once the offer is accepted, escrow is opened and the check is deposited with a neutral third party. In some states it an escrow company, in others it is a title company that performs the escrow duties. The purpose of esrow is to make sure that both parties carry out their duties agreed to in the contract, and at the end of the transaction, one party receives the deed and the keys, the other party the proceeds from the sale.
During the escrow period there are duties that are required of both parties. The buyer does inspections (physical, wood destroying pest, etc.) and the seller is required to provide information (Natural Hazard Disclosure, Lead Based Paint, Title report, etc.). The deadlines stated in the contract control what happens by when.
Usually, if the buyer backs out of the contract after say the physical inspection, or the property does not appraise for the dollar amount of the sale, or the buyer ends up not qualifying for financing, the seller will refund their inital deposit.
However, AFTER the final contingency item has been removed, the buyer is pretty much on the hook. (Of course, you can always hiire an attorney.:)
(again , this is not legal advie). Every time the seller provides the buyer with a new disclosure (say, the wood destroying pest inspection report), that report gives the buyer THREE days to consider the report and\, if they want, cancel.
This is one of the reasons that Realtors represent buyers and sellers. The two Realtors do not have an emotional link to the transaction. Their job is to look out for the best interests of the buyer and seller, and come up with a fair bargain. This means if the wood destroying pest report require repairs, asuuming everything else is in agreement, the Realtors will help the buyer and seller negotiate a fair deal on who fixes what and pays how much.
Again, I do not know your local laws. However, in general, most of the time the contracts are formulated to protect the interest of both buyers and sellers. Once a property is "in escrow", that means that it is no longer "for sale". Because the seller has removed his property from the market, he can no longer solicit new offers. In some cases it is possible for the seller to prove damages and the buyer may not receive all of their initial deposit. For example, if they had agreed for the appraisal to be completed within ten days after signing, and the appraisal is not completed, the seller could opt to cancel the contract, and perhaps say"My property has been off the market for ten days, I want you to pay me $500 to compensate me".
A second payment is made which is the "down payment" to enable the buyer to qualify for a loan. This money is normally deposited after the appraisal and loan approval have been granted. The date the money is due is stated in the contract. Sometimes it's possible for the buyer to qualify for the loan, the appraisal to be approved, but for some reason the buyer does not have or will not provide the deposit. In this case, the "liquidated damages" might exceed the amount of the inital deposit (it depends what the contract says). Most lenders are requiring 10-20% down, with the current loan programs.
That would mean that after ALL the inspections are completed, and while the "behind the scenes" work is being completed, the final deposit is made. In California there is a final inspection three days prior to the turnover of the property. This inspection is to verfiy that the property is in substantially the same condition as when escrow opened. One of our agents did a final walkthrough and a hot water heater burst, the entire house was flooded, and the wood floors had warped. The family had moved out. (a great reason to purchase home warranty protection for sellers). The seller had to replace the floors. The buyer could have backed out because of the changed condition of the property...and probably could have received their deposit(s) back.
Hope this helps.
Most of the agreements here in MA state that if a buyer backs out of a transaction for any reason other than the contingencies within the agreement that the escrow deposit (money down) will be split between the seller and their agent. A release from the buyer has to be signed in order for this to happen. If the buyer refuses to sign this document than the escrow agent holding the deposit has to instructed by a court on how to handle it. In some cases, the legal fees that the listing agent/or seller will incur to go to court, exceed the deposit being held. When this occurs, the seller usually will agree to give it back to the buyer to avoid this process all together. Additionally, the buyer can also risk being sued for "non-performance" and be liable to damages in addition to the waiver of the deposit. At times there is language protecting the buyer from this. You would be best served by consulting an attorney and having them review your contract. Best of luck to you!
Melissa Mancini, Realtor, CBR, GRI
Melissa Mancini, Realtor, CBR, GRI
If a buyer backs out without cause, the deposit monies can be used to offset seller damages. I have seen part of a buyers deposit returned and part allocated to the seller. When the seller could easily find another buyer and be made whole again by that new contract, the buyer received part of their deposit back. It was a substantial deposit and a new replacement contract was quickly put in place. This was a negotiated agreement, not a court order.
Bottom line......everything is negotiable. The buyer deposit is an assurance to the seller that the buyer will perform. It is possible for the buyer to forfeit an entire deposit if the buyer backs out.
If you are referring to the down payment for the house, then the buyer absolutely gets it "back." Since the buyer doesn't actually pay the down payment until it's closer to the end of escrow, the buyer doesn't have to worry about any loss of down payment. Hope this helps! Read your contract carefully and discuss it with your realtor--they should be able to tell you whether or not you will get your down back.
Although we notified the seller within the time allowed for buyers contingencies, the seller refused to release the deposit. He basically held us for ransom until we agreed to give him some of the money. You see, the real trick in getting the deposit back is in the finagling with the seller to agree to it. If they are unreasonable, then you are basically in Lawyer-land and it is going to rapidly cost you money to get that money back. In my case, I lost $14000 out of $27000 because the seller was unreasonable. Also, my Realtor was helpless in this situation. Just because you have a Realtor, doesn't mean you are safe from experiencing this kind of trouble.
I learned from this experience. Try to get a mediation/arbitration clause in your contract, and then, if you have a dispute, do not pay a lawyer thru the nose prior to going to the non-binding mediation. Wait until the arbitration phase for that. Again, my Realtor had no idea how to handle an actual dispute in mediation, and could give me no good advice, and I've learned to be much more hard-boiled about this process as a result.
Hannah, when buying real estate, the path from contract to closing depends on the laws and customs in your area. In some states, attorneys do title searches and act as closing agents. In other states your paperwork might be processed by a title company.
With all the differences in real estate transactions from state to state, there's no way to give you a one answer fits all scenario. If I am correct, it's best you check with a Pennsylvania real estate attorney for your specific location. That said, here are a few general tips that might help you avoid problems no matter where you live.
Good Faith or Earnest Money Deposits
A good faith deposit, also called earnest money, is money you give to a seller when you sign an offer to purchase. By making this deposit, it shows the seller that you are serious (earnest) about buying the property, and until the deal closes the earnest money still belongs to you, not the seller, unless your contract "an offer" to buy says otherwise.
Your offer should always state what happens to the earnest money if the deal falls through.
Most of the time, the earnest money deposit is returned to the buyer if any of the buyer's contingencies cannot be met, example; problems with financing or a home inspecton that shows the home needs more repairs than you thought.
Earnest money often goes to the seller if you back out of the contract for "no good reason".
Most real estate agents are required to use their state's sanctioned real estate contracts that usually has approved wording that describes what happens to the money if a real estate transaction falls through.
Attorneys might use standard contracts or write their own. If you use generic forms purchased from stationary stores or online real estate contract websites; to make an offer to a seller, make sure it is written in a way that protects your rights to the earnest money deposit.
Where Does the Money Go?
The earnest money deposit is credited to you when your real estate transaction closes--You now own the property. Congratulations it's your home now.
Check Your State Laws
Again, your state's real estate contract will tell you who gets the earnest money when a certain event happens, keep in mind, a refund might not be automatic. Check to see if both parties must agree in writing before a deposit held in trust can be given to either party.
If you want more information on just the buying process itself. Click on the link below to receive free no obligation articls on the home buying process. Best of luck to you. Bill
I agree with Carrie about the disposition ........sometimes the "out" is not as clear cut, but those murky cases must be judged individually.