The earnest
money deposit is almost always held in escrow by a realtor or an attorney. If
the transaction fails, both parties have to agree on the disbursement of the
funds before they are released.
If there is no agreement, litigation will have to follow. Normally if the negotiations stall in the early stages of the sale, and it is clear no closing will be held, the deposit will be returned to the purchaser. On the other hand, if there has been much work done by the seller, or if the buyer reneges on his agreement to buy, the deposit might be given to the seller.
The purpose of an earnest money deposit is to show good faith on the part of the offeror. In the past unscrupulous prospective purchasers would make several simultaneous offers on various parcels of property while intending to buy only the one where he obtained the best result.
The effect of this method was to constrain the losing sellers from negotiating with others who were truly interested in purchasing their property, but they were prevented from doing so because they signed an acceptance from the unscrupulous offer-or. Of course, in such an instance the seller could sue for specific performance of the contract, but that could involve expensive litigation which might take years to complete.
The historical development of tendering an earnest money deposit to prove good faith on the part of the purchaser has resulted in an acceptable way to protect sellers and facilitate the completion of real estate transactions.
If there is no agreement, litigation will have to follow. Normally if the negotiations stall in the early stages of the sale, and it is clear no closing will be held, the deposit will be returned to the purchaser. On the other hand, if there has been much work done by the seller, or if the buyer reneges on his agreement to buy, the deposit might be given to the seller.
The purpose of an earnest money deposit is to show good faith on the part of the offeror. In the past unscrupulous prospective purchasers would make several simultaneous offers on various parcels of property while intending to buy only the one where he obtained the best result.
The effect of this method was to constrain the losing sellers from negotiating with others who were truly interested in purchasing their property, but they were prevented from doing so because they signed an acceptance from the unscrupulous offer-or. Of course, in such an instance the seller could sue for specific performance of the contract, but that could involve expensive litigation which might take years to complete.
The historical development of tendering an earnest money deposit to prove good faith on the part of the purchaser has resulted in an acceptable way to protect sellers and facilitate the completion of real estate transactions.
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