how does a non refundable earnest money affect the buyer?

Asked by Abby, Fort Worth, TX Tue Mar 22, 2011

We bid on a home and they countered with: everything same but we need to put down 6K non refundable.

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23
Brian Rayl, Agent, Dallas, TX
Sun Mar 27, 2011
Abby, how is this for a possibility:

You put down $6k, non refundable.

You get your inspection and find out there is major roof damage, foundation damage, or the house needs a new AC. You either proceed and be willing to pay the price, or walk away and loose your $6k.

Next scenario: Your inspection goes fine. All of a sudden, your lender says "I'm sorry, but something popped up on your credit report and you no longer qualify for the loan." You also just lost $6k.

Next scenario: The home owner has a tax lien and the title company says that they cannot confer a clear title. You just lost $6k.

Next scenario: Your home loan is going great, but your lender says they need another week to finish processing the documents. Your closing date is this week. You just lost $6k.

Lets say you want to ask for ANY changes to the contract. Why should the seller negotiate? There is no reason to. They know that if you walk away, you just lost $6k - and it goes into THEIR pocket.

Is it legal? Of course.
Is it ethical? Sure. If the buyer agrees to it, then why not?

Is it SMART for the buyer? Absolutely not!

Because it's more than real estate. It's RAYL-Estate!

Brian Rayl, REALTOR®, e-PRO, SFR
Keller Williams Elilte Park Cities
972-949-4222
Brian@Rayl-Estate.com
http://BrianRayl.com
Web Reference:  http://brianrayl.com
1 vote
Rick Sinclair, Agent, Cape Girardeau, MO
Thu Mar 24, 2011
Nobody offers Earnest Money if they're NOT interested in buying.....of COURSE, they're INTERESTED in buying....however, so many things that can happen as the result of an INSPECTION that can't be seen....structural damage, termite damage, covered up black mold or fire damage....ALL of which "could be" hidden by the seller.....and if the buyer's inspector finds these problems, IF the buyer decides to back out...LOSE their Earnest money? I do NOT consider that a "no brainer"!!!!!!
ANY Realtor in my firm that would allow their Buyer's to BLINDLY walk into a transaction like that without FIRST disclosing the possibility of LOSING their Earnest Money would probably NOT be working in my firm! As a Realtor...our FIRST order should be to PROTECT OUR CLIENTS.....PERIOD! I don't give a RIP about what the SELLER is protecting....and as a BUYER'S AGENT....I PROTECT MY BUYERS! Which is why there are protection clauses in a Contract For Sale. Inspection period....Title Committment.....Loan Committment.
As for a Listing Agent with a client demanding a NON-REFUNDABLE EARNEST MONEY......As a Broker....I wouldn't allow a listing like that. Let them go to the competition......best thing that could EVER happen to my company is to let the competition ruin their own reputation!
Web Reference:  http://www.ricksinclair.com
1 vote
Sharon Vest, Agent, Grants Pass, OR
Wed Mar 23, 2011
I would say "no way!". A seller should be dancing a jig just to have an offer in today's market conditions. Sometimes the REO banks will make it non-refundable but normally even they give you the opportunity to withdraw and refund your deposit if the home won't finance or inspections don't turn out right PROVIDED you have done everything required of you to put forth your best effort to comply with all of the terms and conditions of your lender and your purchase agreement.

As said before, read carefully before signing and if still in doubt, counter with your exceptions or reject and go find a willing seller.
1 vote
Donna Galleg…, Agent, Pensacola, FL
Wed Mar 23, 2011
never put a non refundable earnest deposit down, especially that large amount, with so many homes to choose from. IN Florida that would be illegal
Web Reference:  http://www.pensacolaism.com
1 vote
Jennifer Mu's…, Agent, Arcadia, CA
Wed Mar 23, 2011
I would not put down a truly nonrefundable deposit unless you are absolutely positive you can get financing and that there are no problems with the condition of the house (and nothing will be discovered during inspection). Contingencies exist for a reason and protect the buyer from items discovered after the opening of escrow or if financing falls through. Consult your agent on this, and if you don't have an experienced adviser, get one. You stand to lose a lot of money if something goes wrong. I would not advise my client to enter a deal like this.
Web Reference:  http://JenniferMu.com
1 vote
Guy Gimenez, Agent, Austin, TX
Tue Mar 22, 2011
How does it affect the buyer? Simple. The buyer can lose $6,000. Enough said.

If you have money to burn, move forward. If $6,000 is a lot of money to you and you can't afford to lose it, tell the seller to go pound sand. In my opinion, It is an unacceptable risk.
Web Reference:  http://www.phgbrokers.com
1 vote
Don Groff, Agent, Austin, TX
Tue Mar 22, 2011
Consult with your Realtor. Typically you want to be able to get your earnest money back if financing falls through after your option period has ended. Make sure you have an option period to do an inspection and if you are a cash buyer this would make more sense.

I always try to structure as many "outs" as possible for my clients so make sure your agent goes over the possible issues of this request. On the flip side I always try to tie down the buyer when I am representing the seller.

Good luck with your purchase.

Don Groff
REALTOR | Mortgage Broker | Consultant
Keller Williams Realty | 360 Lending Group
512.669.5599
listings@dongroff.com
1 vote
Tony McMahon, Agent, WHITE PLAINS, MD
Tue Mar 22, 2011
Without seeing all of the documentation, it sounds like they are looking for a firm commitment on your part to see the deal through to the end. You should review the counter offer with your agent and or a real estate attorney
1 vote
The United H…, Agent, Mansfield, TX
Wed Aug 22, 2012
" Meeting your needs and exceeding your dream!"

I think placing non refunable (earnest money) check was careless however perhaps in your situation the only route you could take. Honestly, If I was representing you I would of done everything in my power to steer you clear of the possiblity of losing your hard earned money. Now, if you were advised by your consultant to do so and things went south I strongly recommend you contact their broker so the agent can at the min. get repremanded and hopefully learn from this poor decision. I wish you the best of luck and pray everything went smoothly.

Keller Williams Realty
Real Estate Consultant/3xUS Army Vet.
cell: 817-975-7258
off: 817-635-1157
website: http://www.blissful-estates.com
0 votes
Jeanette Igoe, Agent, Estero, FL
Thu Aug 2, 2012
If he's buying the property, basically it's his down payment and he'd better not walk away from the deal, he will lose his deposit.
Non refundable means, no contingencies, don't expect to walk away because the seller has repairs to make, inspections won't get you out of it.
Not really good for a buyer if they truly haven't made up their mind and of course they can throw a counter back that states, non-refundable only if property passes inspections and contingencies are met.
Good luck!
0 votes
Donnie Keller, Agent, Fort Worth, TX
Thu Aug 2, 2012
It reduced your bank account by that much.
Non-refundable means it's gone for ever.
0 votes
Tiffany Cann…, Renter, Birmingham, AL
Thu Aug 2, 2012
I'm in the process of renting a house. I gave the landlord half on the deposit which he wrote on a that says non-refundable earnest money. I haven't moved into the property yet. Is there any way thatI can receive my deposit back?
0 votes
Brian Rayl, Agent, Dallas, TX
Sun Mar 27, 2011
Abby, how is this for a possibility:

You put down $6k, non refundable.

You get your inspection and find out there is major roof damage, foundation damage, or the house needs a new AC. You either proceed and be willing to pay the price, or walk away and loose your $6k.

Next scenario: Your inspection goes fine. All of a sudden, your lender says "I'm sorry, but something popped up on your credit report and you no longer qualify for the loan." You also just lost $6k.

Next scenario: The home owner has a tax lien and the title company says that they cannot confer a clear title. You just lost $6k.

Next scenario: Your home loan is going great, but your lender says they need another week to finish processing the documents. Your closing date is this week. You just lost $6k.

Lets say you want to ask for ANY changes to the contract. Why should the seller negotiate? There is no reason to. They know that if you walk away, you just lost $6k - and it goes into THEIR pocket.

Is it legal? Of course.
Is it ethical? Sure. If the buyer agrees to it, then why not?

Is it SMART for the buyer? Absolutely not!

Because it's more than real estate. It's RAYL-Estate!

Brian Rayl, REALTOR®, e-PRO, SFR
Keller Williams Elilte Park Cities
972-949-4222
Brian@Rayl-Estate.com
http://BrianRayl.com
Web Reference:  http://brianrayl.com
0 votes
Jeanette Igoe, Agent, Estero, FL
Thu Mar 24, 2011
Why is there a Non-Refundable option? Are you offering to buy the house? The owner is willing to take it off the market for you to purchase at a future date? Why wouldn't you put down the deposit, must make sure it is in an interest bearing account and you receive the interest at closing and the deposit towards your closing costs. Sounds like a no brainer to me.
Do It, unless you really don't intend to buy!
The Seller is protecting his interest, I am sure a year from now the price for the home may go up, you will have sealed a great deal at the current price. Make sure your contract states "Price to be Paid" at closing.
Good Luck.
Web Reference:  http://www.JeanetteIgoe.com
0 votes
Billy Gavigan, Agent, beaufort, SC
Thu Mar 24, 2011
As a developer, seller, and Buyers rep I say in my humble view you should always offer/ ask for non refundable earnest money... as a buyer you show you are serous and prepared and as a seller you know your buyer is for real.. in my experience the closing ratio is exponentially higher with solid non refundable earnest money. As a buyer you will get the home for less if you are prepared and a seller will sleep better at night knowing your buyer is for real...

Billy Gavigan
President
Gavigan Group
Web Reference:  http://www.gaviganhomes.com
0 votes
Rick Sinclair, Agent, Cape Girardeau, MO
Tue Mar 22, 2011
It tells the buyer to STOP....turn around....and RUN! NO buyer is going to consider making an offer without protection of their Earnest Money. As a Realtor, my advice to a buyer would be keep looking. In Missouri, a Buyer's Earnest money is protected by an Inspection Period, Loan Committment and Title Committment Periods.
If an inspection brings up something the buyer's couldn't see and they decide to look elsewhere...yet they lose their Earnest Money????? I don't think so. I would NEVER list a home for sale if the Sellers would only accept an offer with a "non-refundable" earnest money. I'd get stuck MARKETING a home that no buyer in their right mind would consider making an offer.
Web Reference:  http://www.ricksinclair.com
0 votes
Dallas Texas, Agent, Dallas, TN
Tue Mar 22, 2011
You need to confer with your buyers agent unless entire review of documents are presented no one can render an opinion
0 votes
Kim Sullivan, Agent, TX,
Tue Mar 22, 2011
I also agree with the other professionals that answered your question. Consult with your Realtor or an attorney. If you do not have an agent get one! This only one of the problems that can occur . You want someone that can help you and that are looking out for your best interest. We would have to see the documents to really know. Non refundable means yolu would lose your 6K if the deal did not close. Good Luck

Kim Sullivan, RN/Realtor
DFW Fine Properties
817-797-4706
0 votes
Joseph Domino, Agent, Scottsdale, AZ
Tue Mar 22, 2011
Hell NO! Not unless you like giving your money away. There are many reasons real estate transactions fall through. Many are out of your control. A fair contract allows for return of EM if the deal falls through based on something out of your control.

I would never allow one of my Buyer's to agree to this. If you lost your EM would you be able to buy another home? If not what will you do? There are too many other properties on the market, and more coming on each day.
0 votes
Donnie Keller, Agent, Fort Worth, TX
Tue Mar 22, 2011
Which means the earnest money check is made to the seller and it's his regardless if you close or not.
This is ok if you are paying cash but not if you are getting a mortgage.
Also, I wouldn't post the nonrefundable until after I had done my inspections.
0 votes
Bruce Ericks…, Agent, Dallas, TX
Tue Mar 22, 2011
Abby .. Don't reley on someones words or intentions. Only go by what is on the contract.

Bruce
0 votes
Bruce Ericks…, Agent, Dallas, TX
Tue Mar 22, 2011
Something like this would be defined and controled in the contract. You need to read the paragraph in the contract that covers this very carefully.

Non refundable is a little unusual but not unheard of. I would be telling my buyers to think hard on doing this unless there was a very good reason for the need of it or they wanted the home no matter what.

Best of luck .. Bruce
0 votes
Bruce Lynn, Agent, Coppell, TX
Tue Mar 22, 2011
You need to have your realtor explain this to you.
We need to see the entire contract.
$6000 non-refundable does not sound right.

On the typical Texas contracts there is option and earnest money.
Option money is typically small like $50-$200 and is non-refundable.
Earnest money is more likely the $6000 and is refundable under certain circumstances.

Please tell me you are not trying to lease/purchase rent to own or lease to own or something like this.
If you are STOP...don't do it. This is a good way to loose your $6000 and all your rent money.

Bruce Lynn
Keller Williams Realty
0 votes
It is my understanding that a $6000 (or any amount) non-refundable deposit could be considered unjust enrichment in a rising real estate market. The seller will have to show how they were damaged. It won't be easy and there is, at least in California, case law to support the buyer and win back most if not all of your EMD. Google Non-refundable Earnest Money Deposit California. California Lawyer Magazine posted an great article, albeit in 2010, the case law might still be good.
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