Earnest money in the St. Paul area can range from hundreds to thousands of dollars. The purpose of earnest money is to show the sellers that the buyers are serious about purchasing the property. In the St. Paul real estate market, it is customary for the sellers' real estate company to hold the buyers' earnest money in a trust account until the day of the closing. That practice varies from state to state.
Two days ago we talked about how to lose the earnest money. There are also protections for home buyers built into the Minnesota Association of REALTORSĀ® purchase agreement forms. Ways to cancel a purchase agreement without the buyers losing their earnest money include:
- The home buyers do not qualify for the loan. The financing addendum says in this circumstance the buyers and sellers will sign a cancellation of the purchase agreement and the buyers will get their earnest money back.
- A defect in the house is discovered in the home buyers' inspection. The buyers request the defect be corrected and the sellers decline. The inspection addendum says if both parties cannot come to an agreement on repairs, a cancellation will be signed and the earnest money is returned to the home buyers.
- Review of condo or townhouse documents within the alloted ten days reveals something the home buyers cannot accept (i.e., no pets, height and weight restrictions for pets, restriction on number of pets, too little reserve funds in the association, restrictions against renting the unit, restrictions about guests, parking restrictions, etc.). The common interest community addendum allows the home buyers to cancel the purchase agreement and the earnest money is returned to the buyers.
- The purchase agreement is written contingent on the sale of the buyers' current house within a specified time. If the buyers' house does not sell on time or if the seller calls for removal of the contingency, both parties will sign a cancellation and the buyers' earnest money is returned.
- If the home sellers do not provide a clear title to the property, the buyers' earnest money will be returned to the buyer.
- If the sellers decide not to sell it is considered default. on the contract. The buyers can sue to make the sellers perform according to the written purchase agreement. This does not often happen because it is time consuming and buyers want to move into a house. In the event the buyers do not sue for "performance" on the contract, they would get their earnest money back.
There are other circumstances when the house purchase falls apart, but these are the most common ones. In each case the buyers would get their earnest money back if the house does not close. Note that the terms and conditions of when the earnest money is refunded to the buyers are in writing in the forms that are part of the purchase agreement. The purchase agreement is a legal and binding contract. It is for the protection of both the home buyers and the home sellers. If either party does not perform it is a breech of the contract agreement and penalties can ensue.
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