If a broker receives conflicting demands for an earnest money deposit from a buyer and a seller

Disbursement of Earnest Money. Subject to the terms of the Purchase Agreement and this Agreement, Escrow Agent shall disburse the Earnest Money pursuant to the terms of the Purchase Agreement, including, but not limited to, Section 2.1 of the Purchase Agreement. Within two (2) Business Days (the term “Business Day” having the same meaning herein as in the Purchase Agreement) after receipt of written notification from Sellers (the “Sellers’ Default Notice”) that Purchaser has breached or defaulted under the Purchase Agreement and Sellers are entitled, pursuant to the Purchase Agreement, to disbursement of the Earnest Money (or so much thereof not previously disbursed pursuant to the terms of the Purchase Agreement), Escrow Agent shall send to Purchaser a written notification (the “Purchaser’s Notice”) advising Purchaser that Escrow Agent intends to disburse the Earnest Money (or so much thereof not previously disbursed pursuant to the terms of the Purchase Agreement) to Sellers no earlier than two (2) Business Days after Purchaser’s receipt of such written notice from Escrow Agent. Sellers also shall provide a copy of Sellers’ Default Notice to Purchaser. Escrow Agent shall be entitled to rely, for purposes of this Agreement, upon any statement delivered by Sellers or Purchaser pursuant to this Section 3. Escrow Agent shall disburse the Earnest Money (or so much thereof not previously disbursed pursuant to the terms of the Purchase Agreement) no earlier than two (2) Business Days after Purchaser’s receipt of Purchaser’s Notice, provided, however, that Purchaser has not notified Escrow Agent that it disputes Sellers’ Default Notice. In the event of any disputes among the parties hereto in connection with the Earnest Money or this Agreement, Escrow Agent shall refuse to comply with the claims and demands by Sellers or Purchaser so long as the dispute shall then continue. In so refusing, Escrow Agent shall make no delivery or other disposition of the Earnest Money, except as permitted under Section 6(a) below, and, in so doing, Escrow Agent shall not be or become liable in any way to any person for its failure or refusal to comply with conflicting or adverse demands and it shall continue to refrain from acting and refuse to act until it receives authorization as follows:

Wouldn’t it be nice if every real estate transaction closed without a hitch? The reality is, obstacles can sometimes pop up during the closing process and, to protect the seller, most real estate contracts will require potential buyers to put earnest money in an escrow account. But what is earnest money, who handles the escrow account, and what happens to your money if you decide not to buy?

What is earnest money?

When buying a home, the buyer is usually asked to put down a certain sum of money to show the seller that you’re serious about buying their home. This may also be referred to as a good faith deposit. The amount you put down will depend on the purchase price of the home you’re looking to buy and the housing market in that area. Typically, the earnest money will total about 1% to 5% of the cost of the home you’re hoping to buy. This money is not paid directly to the seller. Instead, it is placed in an escrow account.

What is an escrow account?

An escrow account, according to Bankrate, is “a legal arrangement with a neutral third party, where money is deposited per the terms of a contract.” Depending on where you live, a real estate agent or a title company will act as the escrow agent (i.e. neutral third party). Your earnest money will stay in the escrow account until the home purchase transaction is complete or terminated.

While it is typically up to the buyer to pick the escrow agent, the seller must agree. Your REALTOR® can help you find a reputable and trustworthy agent. MYMOVE™ suggests buyers, “check the credentials of any potential escrow agent, and in no circumstances should a buyer give earnest money directly to a seller.”

What does an escrow agent do?

When it comes to closings, an escrow agent serves as a neutral third party and is responsible for a variety of tasks including:

• Performing a title search
• Requesting a statement from the seller listing all debt the buyer will take on with the purchase.
• Ensuring the contingencies listed in the contract are met.
• Preparing and recording the deed and other documents related to the escrow.
• Closing the escrow account and dispersing the funds.

What if I decide not to buy, will I get my earnest money back?

It depends on why you are backing out of the deal. There are certain contingencies covered in most real estate contracts protecting the buyer. If you back out of the contract for an approved contingency, you will get your earnest money back.

You can expect your earnest money back if:

• The home doesn’t pass inspection.
• The home appraises below its sale price.
• You are unable to obtain a mortgage.
• The home has title search issues.

You might not get your earnest money back if:

• You don’t meet the deadlines listed in the contract for inspections and appraisals.
• You have a change of heart.

What if the seller doesn’t agree to give me my earnest money back?

REALTOR® Magazine urges homebuyers to confirm that the home purchase contract describes the duties of your escrow agent because “When the parties cannot come to an agreement as to the release of escrow, and they make conflicting demands for the funds, the escrow agent will generally not be able to release the funds to either party.”

Furthermore, the article suggests contacting your escrow agent immediately if the seller attempts to make a claim on the escrow funds that you don’t agree with. Letting your agent know promptly of the dispute will help stop the funds from being disbursed. You can, and in some states you are required to, enter into mediation or arbitration before taking legal action when escrow funds are in debate.

If the dispute cannot be settled through mediation, your escrow agent will file an interpleader action to be removed from the dispute and your funds will be deposited in the registry of a court. The escrow agent will receive reimbursement for attorney’s fees that are accrued during the filing of the interpleader action. This reduces the amount of your earnest money fund which is why, according to REALTOR Magazine “purchase contracts – and common sense – dictate that buyers and sellers should try to come to an amicable settlement to avoid the cost and other challenges of litigation.”

In most cases, if you decide not to buy a home you have put earnest money down on, you can expect to get that money back. Occasionally, even if you back out of the deal for a reason not listed on the contract (say the location of your job changes), sellers in a competitive market will release your earnest money back to you knowing another deal is just around the corner. Nevertheless, it’s always smart to review the contract, speak with your REALTOR®, and enlist an escrow agent to make sure you don’t lose your earnest money if you do have to back out of a deal.

Who gets earnest money when buyers back out?

What happens if buyer does not deposit earnest money in Florida?

What happens in an escrow dispute in Florida?