Is our earnest money in jeopardy if seller pulls out after the appraisal is done?

We are in the process of buying a home. Our offer was accepted; we had the highest escalation clause cap among 8 offers. We also included a substantial sum of earnest money in

our offer. The contract has been signed, and now we’re waiting for the appraisal to come in before we can close. However, 2 days ago, the 96-year old seller’s daughter found out that her mom had sold the house and got very upset. She’s apparently concerned about her inheritance and tax issues. The seller’s agent asked our agent if we were willing to back out. We said no, we will be moving forward with the sale. At this point they are resigned to that but the daughter has convinced her mom that if there is any way to pull out of the sale (e.g. a

snag in the appraisal), that she needs to take advantage of it. Our concern has to do with the

appraisal. Specifically, what happens if the appraisal comes in with a work order which we would pay for and the repairs cannot be completed until after the closing date. Extending the closing date would require an additional negotiation with the seller. Knowing what we know now, it’s likely that the seller’s daughter would convince her to refuse such a negotiation in an effort to get the house back. If it comes down to this extra negotiation, and if they choose to run away, is our earnest money at risk? Can they really break the deal and take our earnest money?

Asked on June 14, 2016 under Real Estate Law, Washington


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

No, they cannot break the deal and keep your earnest money: the seller only gets the earnest money if the buyer backs out  of the deal when not otherwise allowed to do so by the terms of the contract. If the seller backs out of the deal, they have to return the earnest money--and if they violated the terms of the contract by terminating it when they did not, under the contract, have good cause to do so, you could sue them to enforce the contract (i.e. force the sale to go through) and/or for monetary compensation.
Do bear in mind that even when someone *must* do something, it doesn't happen automatically or by itself: so if they back out of the deal, even though they must return your money, if they refuse to do so, you will have to sue them to make them turn the money over (and possibly to get additional compensation for their unlawful act).

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