I was reading about earnest money, in regards to home buying, and all the Google sites I come across state it’s a bad idea from the buyer’s point. Most sites can list at least 20 reasons why it’s bad for the buyer.
Question is, when is it a good idea? Outside of a really tight real estate market, it seems in most places today, there would be more buyers than sellers.
What about non refundable earnest money, in regards to other areas, other than real estate, as well?
Never heard of nonrefundable earnest money, and never heard of making a purchase offer without some earnest money.
I’m not entirely clear from your OP - do these internet sites say all earnest money is a bad idea, or just nonrefundable. I cannot think of a situation where I would put up nonrefundable cash. It is a long time since I took property law, but I understand courts are generally loathe to enforce specific performance in RE transactions.
I’ve only contracted to buy sell homes in 2 states - IL and IN.
Earnest money can be non refundable in case of default on a Purchase Agreement by the buyer as a penalty. It depends on the contract you sign.
Earnest money is standard most everywhere - I can’t see someone agreeing to take their house off the market with no good faith demonstration by a buyer.
Application for immigration, at least when the applicant is in a foreign country, requires a non refundable fee, (just to apply, no guarantees!), of over $800, in Canada anyway.
Is this the sort of thing you mean!
(That’s an enormous amount of money for a person, in a third world country especially, to produce just to apply to immigrate!)
Indeed, my friend was semi-scammed a decade or so ago where someone signed an agreement to purchase his house and put down several hundred dollars so my friend would take it off the market – and then never actually got the loan and purchased the property. I suspect they were house flippers who would purchase anything they could get their hands on and then try to immediately sell it for more money, and just not actually purchase the house if they couldn’t.
So my friend got to keep the deposit, or earnest money, or whatever it was called. Otherwise he would have had nothing to show for keeping his house off the market for a month.
Over the past year I contracted to buy 2 houses, both of which failed their inspections, which allowed me to cancel the contracts and receive my earnest money back.
Right, but was that kind of thing specifically spelled out in the contract you signed? Both houses I’ve bought required a deposit, with a limited set of conditions under which I could cancel the sale and get it back. But if I didn’t meet one of those conditions (failed inspection, inability to get a mortgage, maybe loss of employment?, property undergoes damage or loss before closing etc.), I couldn’t cancel without losing the deposit.
Yeah, specifically included in the form contracts. In every contract I’ve read/signed, inability to obtain financing allows the buyer to cancel and have earnest money refunded. Same with inspection revealing significant structural defects.
Loss of employment, not sure why that should entitle you to a refund. Sucks for the buyer who lost his job, sure, but not sure why the seller should take a hit for that. As someone pointed out ahead, they took their house off the market, which could reasonably entitle them to some compensation. Unsure about the damage/loss, but suspect that also would be covered in most contracts.
Like I said, forfeiture of the earnest money is generally the only recourse the sellers will have if a buyer walks away, because it will be extremely rare for a court to force someone to buy real estate. Folk putting in bids should be aware of this possibility, and try to put up as little earnest money as possible.
Tho I’ve bought and sold a few houses and am a lawyer, I am not a real estate lawyer.
I guess I’m responding more to your first post where you said you’d never heard of nonrefundable earnest money. The point I was making is that it’s standard (IME anyway) for earnest money to have certain conditions attached to it, and outside those conditions, yes, it’s nonrefundable.
OK. I guess I interpreted “nonrefundable” differently than you - and perhaps the OP - did. Sorry.
I’ve never heard of a real property contract that did not involve putting up some earnest money. And included specific contingencies under wich the contract could be cancelled and the earnest money refunded.
Like I said, I’m no RE expert, but I’m not sure a contract absent SOME earnest money (not even a peppercorn! ;)) is even a valid contract. The seller gives up something (takes his property off the market), but the buyer can walk away whenever he wants - at no cost - for whatever (or no) reason? Maybe property sales are done in that manner somewhere, but it is not the standard where I have lived.
IANAL, but as I understood it, deposits are non-refundable if they cover some actual costs incurred. Perhaps taking a house off the market counts as an actual cost, but I thought otherwise there needed to be some consideration in exchange for the money (if I am using that term correctly).
It’s all in the contract. There can be almost any kind of agreement re: earnest money and default that the parties want, assuming it’s legal. Including no earnest money, but that would be a highly unusual agreement.
There are some circumstances that break the contract with no consequences for the seller or buyer, like the above stated failure to pass inspection or lack of financing. Also, if the seller or buyer dies. If the property is seriously damaged, the contract is voided as well, but there is some dispute about “serious damage” as you can imagine.
Generally beyond that, if the buyer has to give you the earnest money because of a default on their part, there is no requirement for consideration, as the earnest money is legally considered damages, not a payment for value.