As a seller, what are our rights to keep an earnest money deposit?

UPDATED: Sep 30, 2022

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As a seller, what are our rights to keep an earnest money deposit?

My wife and I were under contract with a prospective buyer to sell our home. The inspection report revealed possible asbestos in the attic insulation and one of their asks was to have it abated at our expense. They were also asking for $8,000 in concessions for other repairs. Long story short, we agreed to all the terms and signed off on the repair agreement. The buyer then decided to walk away from the deal leaving their earnest money of $5,200 on the table. However, they want their earnest money back and do not agree that it is ours to keep. Besides us losing several weeks by not trying to find another buyer, the impact of this also caused me to take funds out of investments in order to close on our new home which will I will need to pay taxes on for capital gains. I talked to my realtor about offering a 50/50 deal to split the deposit funds. If this doesn’t work, he said the only other way to resolve this is to litigate. I wanted to get some legal advice on how to handle this situation and if litigation is the right option, then would this even make sense financially to pursue.

Asked on February 15, 2017 under Real Estate Law, Pennsylvania


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

The law is clear: if the buyer walks away when the seller is complying with all obligations, the buyer has breached the contract and the seller may keep the deposit. If they will not agree to release it to you, you could sue for a court order that it be turned over to you--that, unfortunately is the only way to get it if you can't work it out voluntarily, so you would have to bear the cost of litigation. If forced to litigate, you are not limited to the deposit; if your costs due to the failed sale exceed the deposit, you could sue for the additional amounts, too.

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