Should I Give Up My Earnest Money

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
hachiko
Posts: 211
Joined: Fri Mar 17, 2017 1:56 pm

Re: Should I Give Up My Earnest Money

Post by hachiko »

galawdawg wrote: Mon May 17, 2021 5:27 am IANYL but some of the advice you are getting here regarding your ability to back out of the deal and receive your earnest money back based upon an alleged "misrepresentation" of or "deception" concerning the square footage is seriously flawed.
I was hoping I'd see this response. We also waived contingencies (but our earnest money deposit was only 7k), but we considered that 7k gone pretty quickly. Seeing some of the other responses, I was thinking sh*t - maybe we were poorly advised (we always wanted the house, but in terms of negotiating the price down a bit for repairs).

Also, we got two appraisals over the course of 3 weeks. The second one came in $100k over the first, on a $600k house. So I would agree with the other responses not to put too much emphasis on the appraiser's number.
humblecoder
Posts: 638
Joined: Thu Aug 06, 2020 8:46 am

Re: Should I Give Up My Earnest Money

Post by humblecoder »

It sounds like you already had some doubts subconsciously because of other factors prior to the appraisal. After all, you knew about the issue with the schools, the additional commute, and the renovations from the start. There was nothing about the appraisal that changed that. So it is incorrect to say that you want to break the contract because of the appraisal.

Put it this way. Let's say that the house was in move in condition, had the perfect school, and was a 5 minute commute. Would you even be considering breaking the contract and losing $50K over an $80K under-appraisal? Absolutely not!

Also, I don't think you would be able to break your contract because of the square footage difference. The government may be counting square footage differently for tax purposes than the appraiser. I don't think you can argue that the seller intentionally mis-represented something based upon that, unless there is some specific language in the contract to that effect. I am not a lawyer so this is just a layperson's opinion.

In my estimation, you have two options. First is to just go through with the purchase. Second is to try to negotiate getting some or all of your deposit back. The sellers might be amenable to that. They might think that, given the hot housing market, they can get even MORE for their house. Therefore it would be worthwhile for them to let you break the contract if they think they can get a better deal. However, keep in mind that since the housing market is so hot that you might end up having to pay more for an equivalent house.
DXG1987
Posts: 28
Joined: Wed Dec 19, 2018 11:11 am

Re: Should I Give Up My Earnest Money

Post by DXG1987 »

I don't think this is a decision that you should make based on the appraisal.

I offered 700k on a small DC condo last fall (about 50k over asking price) with all contingencies waived and 70k in earnest money. The appraisal came in at 750k. However a week later, the national lender stopped doing condo lending in DC. A few weeks out from closing, I needed to find a new lender.

The second lender ordered a new appraisal. The second appraisal came it at 705k. Thus, two appraisals less than a two-weeks apart differed by 45k.

Appraisals can and will differ. If you are concerned about the extra 80k out-of-pocket, maybe you can get a second appraisal.
Goal33
Posts: 1704
Joined: Sun Apr 12, 2015 12:30 pm

Re: Should I Give Up My Earnest Money

Post by Goal33 »

They can’t just take your 50k and then turnaround and sell the house for more. That’s not reality.

Find a RE with a clue.
ensign_lee
Posts: 414
Joined: Fri Mar 12, 2010 10:03 am

Re: Should I Give Up My Earnest Money

Post by ensign_lee »

As someone else has mentioned, the net diff as this point is "only" $30k since you will be forfeiting $50k of the $80k if you walk away.

That's less than 3% of the total purchase price. I'd go through with it vs just giving away $50k. That's almost enough to just finish the transaction, then re-list the house and come out break-even.
Topic Author
RelaxNoMore
Posts: 7
Joined: Wed Dec 30, 2020 6:43 pm

Re: Should I Give Up My Earnest Money

Post by RelaxNoMore »

galawdawg wrote: Mon May 17, 2021 5:27 am IANYL but some of the advice you are getting here regarding your ability to back out of the deal and receive your earnest money back based upon an alleged "misrepresentation" of or "deception" concerning the square footage is seriously flawed.
This is most likely true. The contract had some language around buyer to verify the actual square footage. I read online somewhere it is added because there had been too many lawsuits due to the differences. But there is no “correct” way to measure the house size. 10 appraiser may have 10 different numbers. Plus, I forgot to mention this is an estate sale. Sellers know nothing about the property. They didn’t live in the property.

At the end of the day, like many of you pointed out, appraisal is only a small factor. We started doubting our decision because of the location, school, etc, before the appraisal came in.
User avatar
hand
Posts: 1662
Joined: Sun May 17, 2009 8:42 pm

Re: Should I Give Up My Earnest Money

Post by hand »

Appraisal is likely to be low vs true value in a rising market; take a read through this thread:

viewtopic.php?f=2&t=346147

Given the facts, I'd risk the low possibility of overpaying slightly vs walking away from $50k. That being said, perhaps worth reviewing why you are having second thoughts - perhaps your gut is warning you away for reasons other than risk of overpayment. If you do decide not to close, there are many possible scenarios where the seller may be willing to refund your earnest money - perhaps they have a better contingent offer in hand, or want to chase the rising market.

As always, make sure you understand your contractual obligations to your realtor - would be a bummer to walk away from a deal for overpaying by $80k only to find you lose $50k in earnest money AND owe tens of thousands to your realtor.
User avatar
LilyFleur
Posts: 1864
Joined: Fri Mar 02, 2018 10:36 pm

Re: Should I Give Up My Earnest Money

Post by LilyFleur »

Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
This.
Wanderingwheelz
Posts: 1244
Joined: Mon Mar 04, 2019 9:52 am

Re: Should I Give Up My Earnest Money

Post by Wanderingwheelz »

nitpick wrote: Sun May 16, 2021 3:31 pm
Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
This is the best advice! Lawyer up if needed!
I thought so too.
3 Fund Portfolio. 70/30 AA. No mortgage. Simplicity is key.
Jags4186
Posts: 5785
Joined: Wed Jun 18, 2014 7:12 pm

Re: Should I Give Up My Earnest Money

Post by Jags4186 »

For $50k I’d look for anyway to weasel out. Are there Washington State contingencies that can’t be waived? For example, my real estate attorney in NJ said that radon tests almost always come back positive in the area I was looking at and are the easiest way too weasel out of a contract by getting your earnest money back.
FoolMeOnce
Posts: 1105
Joined: Mon Apr 24, 2017 11:16 am

Re: Should I Give Up My Earnest Money

Post by FoolMeOnce »

Watty wrote: Sun May 16, 2021 5:06 pm Assuming that you cannot get a lawyer to get you out of the deal I would just forget the $50K and ask myself if I would buy the place for $1.03 million today with the way you feel about the house. If not then getting out of the deal would make sense.

Losing the $50K would sting but one way to look at it is that you paid $50K for a 30 day option to buy the house while you did your due diligence.

It is easy to be loose with other people money but with your income $50K is only about two months income. Lots of people have made mistakes that cost them two months income.
+1

Looks like none of your concerns are actually about the appraisal, which, as many people have noted, is close enough. Your $50k is gone; do you want the house for 1.03mm or not?
bmelikia
Posts: 681
Joined: Mon Jun 15, 2009 9:23 pm

Re: Should I Give Up My Earnest Money

Post by bmelikia »

nitpick wrote: Sun May 16, 2021 3:31 pm
Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
This is the best advice! Lawyer up if needed!
This seems reasonable to me
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle
ElJefeDelQueso
Posts: 99
Joined: Wed Mar 06, 2019 5:54 pm

Re: Should I Give Up My Earnest Money

Post by ElJefeDelQueso »

TimeRunner wrote: Sun May 16, 2021 9:35 pm Buy it, fix it up, and if you don't like it still, flip it next Spring. Earn your money back. :beer
+1
solarcub
Posts: 49
Joined: Sat Feb 08, 2020 10:09 pm

Re: Should I Give Up My Earnest Money

Post by solarcub »

If you don't buy this house, are you confident you can find another one you will like? If you really want to have kids, a house with a yard is nice to have. Even better is a park within walking distance. You need to look around and see if you are actually overpaying or if this is just what houses cost in your area.
User avatar
alpenglow
Posts: 1249
Joined: Tue May 31, 2011 12:02 pm

Re: Should I Give Up My Earnest Money

Post by alpenglow »

I wouldn't give up $50k over an $80k difference in appraisal. It's not like it appraised at $800k.
alfaspider
Posts: 3684
Joined: Wed Sep 09, 2015 4:44 pm

Re: Should I Give Up My Earnest Money

Post by alfaspider »

I wouldn't worry about the appraisal. It's VERY common for appraisals to lag in hot markets. Why? Because appraisals are by their very nature backward looking. The appraiser is only going to look at recent sales for comps, but if recent sales are from 3 months ago, that could easily be 5% ago in a quickly rising market. Even in a market that isn't escalating quickly, appraisals are only a ballpark range. Unless you are moving into a community full of recently built houses that are nearly identical, it's often impossible to get more than +/- 10% of a house's value until you actually put it on the market.

If you are going to back out of the house, I would do it only due to a substantive reason (i.e., the house was materially misrepresented or does not meet your needs)- Not because of comps from a few months ago.

If the low appraisal will cause you a liquidity problem, it may be worth paying for a second appraisal. Another appraisal may look at some more recent comps, or may give some leeway for a quickly rising market.
fatherjames
Posts: 50
Joined: Sat Dec 05, 2020 12:01 pm

Re: Should I Give Up My Earnest Money

Post by fatherjames »

You are going to want to be very happy with your school situation. If you have more than one kid then you are going to spend many years at their elementary school. We have three kids and spent a total of 9 years at our K-5 school. It seems to last forever LOL.

I feel sorry for people trying to buy in this market. I just can't imagine offering someone that much more than asking. I would wait it out. Be aware when the kiddos are young they don't take up much room. You just need a great daycare and a nice park to play in. You don't have to be in that perfect school district until they are going into kindergarten. That is what we did and it bought us a few more years of living in our cool young person neighborhood that we struggled to give up.

I would eat the 50K if you can't squirm your way out. Cool the jets and wait out the insanity.

Good luck!

James
HomeStretch
Posts: 6356
Joined: Thu Dec 27, 2018 3:06 pm

Re: Should I Give Up My Earnest Money

Post by HomeStretch »

I am somewhat surprised that the Seller wants to keep all of the earnest money (even if entitled to it) if the Seller can easily sell the property for a higher price. In my area, the threat by a Buyer to file a lawsuit to have the deposit returned seems to induce the Seller to work out an amicable settlement with the Buyer as an active lawsuit will keep the Seller from being able to move forward for awhile with another Buyer.
quantAndHold
Posts: 5659
Joined: Thu Sep 17, 2015 10:39 pm

Re: Should I Give Up My Earnest Money

Post by quantAndHold »

To everyone who is saying that “of course you can get your earnest money back, you’re just not trying hard enough....” Not so much. In order to get an offer accepted in that market, OP would have had to basically waive any hope of getting that money back, for any reason other than completely transparent malfeasance on the part of the seller. Maybe if the seller burned the house down the day before closing or something. Otherwise, it ain’t gonna happen.

Anyway, cold feet is really common on a major purchase like this. That doesn’t mean you should automatically walk away. Why did you buy the house in the first place? Does it solve the problem you were trying to solve? If you bail on this and lose your deposit, will you be able to find another house that works better?

If this were me, I’d go through with the purchase. If, after closing, I still didn’t want the house, I’d put a couple of cosmetic fixes into it and list it for $1.2m.
Yes, I’m really that pedantic.
rascott
Posts: 2653
Joined: Wed Apr 15, 2015 10:53 am

Re: Should I Give Up My Earnest Money

Post by rascott »

Tough call. And what happens if it's 5 years from now and this place is selling for $1.5m. Your $50k lesson becomes a $500k one.

Unless you just absolutely hate the house, I'd buy it. There is no perfect house unless you have an unlimited budget.

Sounds just like typical cold feet. Happens a lot.
User avatar
leeks
Posts: 1065
Joined: Thu Apr 07, 2011 4:33 pm
Location: virginia

Re: Should I Give Up My Earnest Money

Post by leeks »

ensign_lee wrote: Mon May 17, 2021 10:14 am As someone else has mentioned, the net diff as this point is "only" $30k since you will be forfeiting $50k of the $80k if you walk away.

That's less than 3% of the total purchase price. I'd go through with it vs just giving away $50k.
+1

That appraisal seems close enough.
WhiteMaxima
Posts: 2324
Joined: Thu May 19, 2016 5:04 pm

Re: Should I Give Up My Earnest Money

Post by WhiteMaxima »

Just buy it, Appraisal value is only to the bank. What if the appraisal value > 1.08 mil. Would you give back seller the difference. Buy as you need within tolerance of price diffferece. Would you wait another round of bidding war? Seattle is a hot market. Lumber price has trippled since last year, Try to find a contractor and see what they ask for a quote.
User avatar
serbeer
Posts: 1275
Joined: Fri Dec 28, 2007 2:09 pm

Re: Should I Give Up My Earnest Money

Post by serbeer »

Goal33 wrote: Mon May 17, 2021 10:11 am They can’t just take your 50k and then turnaround and sell the house for more. That’s not reality.

Find a RE with a clue.
Why not? They keep earnest money if buyer changed mind, and house is their to relist at the price they want. These are two independent events, they are not at all connected legally.
Freetime76
Posts: 505
Joined: Wed Jun 26, 2019 8:26 pm

Re: Should I Give Up My Earnest Money

Post by Freetime76 »

I’m sorry, you sound like you’re second- guessing, prompted by the appraisal number.

A few thoughts, which echo other’s comments:
1. You agreed to buy or forfeit earnest money (according to contract, right?), so I am in the camp of a) buy or b) don’t buy and fork over $50 K.
- I’m not going to try to wriggle out of it, because - as pointed out, above - square footage can easily have a discrepancy for a litany of reasons...how it’s measured, the county is out of date etc etc.
- Also, real estate listings on the MLS have a disclaimer notice saying something to the effect of, ‘ information is believed to be accurate but not guaranteed and buyers should verify important info for themselves’.
- You waived the appraisal and loan contingencies, likely helping your offer to get accepted and achieving your original goal after missing out on several offers.

2. We would not be OK losing $50K, so we are buying the house. You are just fine with your income. Also, we would sell the townhouse. AirBNB plus pandemic and kids, no thanks. The equity goes into the next house (home).

3. Regardless of the current market (if the market gets soft, let’s say), well, you weren’t going to move immediately anyway. Even if the house had appraised at value, you still might face a drop below what you paid. So what? Live in your new home and enjoy.

4. Being concerned about being the most expensive house on the block, suggests that you’re thinking of your home as an investment. We would instead be reminding ourselves that we actually bought LESS house than we were originally looking at. So if we are “The Jones’s” updating our already “expensive” house in the not-so-expensive neighborhood- too bad. Do it and be the fancy people. :wink:

5. If you move in, can’t stand it, and still keep thinking about the appraisal #, sell it. You’ll probably break even at least.
User avatar
David Jay
Posts: 10998
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Should I Give Up My Earnest Money

Post by David Jay »

Watty wrote: Sun May 16, 2021 5:06 pmKeeping your townhouse as a rental likely does not make any sense because you would be giving up the homeowners capital gains exclusion and you would also have almost $2 million in real estate in the same city which is a diversification problem. If you sold the townhouse you could easily afford to do all the remodeling you want.
+1
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
presto987
Posts: 398
Joined: Sun Aug 30, 2020 10:58 pm

Re: Should I Give Up My Earnest Money

Post by presto987 »

RelaxNoMore wrote: Sun May 16, 2021 1:51 pm
kelvan80 wrote: Sun May 16, 2021 1:41 pm In this case I would ask the realtors, you and the seller to split this 3 ways to see if you can get the amount down you'll have to eat. Maybe the seller comes down $10k in price, ask the realtors to give up $5k each something like that. It just depends on how much you love the house and if you think this market is going to even out soon.
We already talked to seller. They are firm on the price, because they expect to put the house back on the market for more.
Agree with everyone who said that the appraisal should not influence your decision at all, as long as you're still able to finance the house.

If the main issue is that you fear you've overpaid, then I suggest you still go ahead and buy the house. Why?
1. Whatever amount you overpaid by will become irrelevant in the long run
2. Even if you overpaid based on current comps, if the market is rising then maybe it will look like a great deal in a few months. If the seller truly believes they can put it back on the market for more, then that is one indication that you didn't overpay by much.
3. Even if you overpaid, subtract $50k from how much you think you overpaid by, and use that number when making your decision.
4. If you back out of the deal, you will have to keep looking and find another house, and you may have to overpay on that one too!

If the main issue is that you just don't like the house, regardless of the appraisal and the price you're paying, then that is a good reason to back out of the deal.

We had a similar experience where we almost backed out of a house purchase based on the seller's refusal to pay for repairs. We had an inspection contingency, so we could have backed out at no cost. In the end, we went forward with the purchase and are VERY glad that we did. That is because the house has met our needs very well, and with the benefit of hindsight, it would have been very hard for us to find another house that was as good. Eating the cost of some repairs was a small price to pay for this.

If the seller really thinks that they can list the price for more if you back out, then you might be able to use this to your advantage. Tell the seller that you plan to go through with the deal, but you would consider backing out if they return $35k of your earnest money. The seller should theoretically agree to this deal, because then they get $15k of your escrow money and get to list the house for a higher amount. If they don't think $15k is enough, then they can negotiate the earnest money so that it's an even split (25k/25k). Either way, they win, and you don't have to forfeit the whole $50k.
User avatar
bampf
Posts: 786
Joined: Thu Aug 04, 2016 6:19 pm

Re: Should I Give Up My Earnest Money

Post by bampf »

Speaking from experience, if you dont want the house, dont buy the house. On a $1M sale you are looking at $50 to $60K to sell it again, plus you have a hassle, plus you have to remodel etc... Walk away from the $ as easily as you can. Don't roll over, but, recognize that $50K is your max loss now. If the market tanks tomorrow and you have a house $300K underwater, you got no choices.

Buy it if you want it. If you don't, pay your fee and walk away.

--Bampf
Nescio
User avatar
ResearchMed
Posts: 11736
Joined: Fri Dec 26, 2008 11:25 pm

Re: Should I Give Up My Earnest Money

Post by ResearchMed »

Goal33 wrote: Mon May 17, 2021 10:11 am They can’t just take your 50k and then turnaround and sell the house for more. That’s not reality.

Find a RE with a clue.

To OP (and a few others):

Don't forget... sometimes we (OP and others) are the *sellers*.

So... how would it be if you accept an offer, one that is very attractive due to few or no contingencies, and had turned down one or possibly several otherwise "good offers"... just not quite as good, or so it seemed.
You are delighted, everything looks good, and you thus move forward with your own plans, whatever they may be.
Perhaps that includes signing on the dotted line for another property, which is fine, because you know you'll be selling this house and can easily pay off that bridge loan fast (so no worry about that unpleasant rate; it's just for a month or so, right!?). There is that nice new house to look forward to, and where *you* put down what might be much more earnest money than just $50k! After all, you KNEW that you'd be closing soon and how much risk was there in this case, eh?? :happy All is good, even though moving is SUCH a pain.
And/or there are other ways that you've moved forward with plans that can't easily - or can't inexpensively - be changed.
All is good.

Indeed, you wrote on some really wonderful financial website forum :wink: that you JUST ACCEPTED A GREAT OFFER!
YAY YOU! :beer

Ooooops.... :annoyed
Not too long before closing, that nice buyer, the folks you thought loved your house SO much (!!)... er, turns out they DON'T. :shock:
Not only are they not going to close on the house, forcing you to start the listing process over again, but *maybe* one of the other offers is still interested? Or is this market so hot that they panicked at losing out on "their dream home" and they *quickly* had an offer accepted on that next one. [Yay THEM!]
Turns out now that "nice buyer" is threatening to sue you for that earnest money... that money that's intended to partially compensate you for the aggravation and costs of needed to start the process over. Say what!? How much more will THAT cost!?
Plus, your house is now in total disarray! Packing boxes EVERYWHERE!
Packing and moving - GRRRR!

All that nice staging, pretty bedspreads borrowed from BFF but now sent back by FedEx overnight, and those lovely lace tablecloths that you've already sent off to Dear Children (who actually really DID want them - how nice was that!??). And the RE agent had absolutely insisted that you spend $X for a few <whatevers> to help with staging. If only you hadn't already paid to have them returned early...
That grand piano, already moved out (that humongous thing; hard to schedule a good piano mover; lucked out with that time slot!). Too bad; it *really* did look nice in that alcove in the Living Room! Everyone always said it 'made the house on the first impression' :happy
And those stacks and stacks of papers and books you finally are ready to finish up now that x, y, and z have *almost* been all packed up...

Where is that Xanax? Did it already get packed up too!???

:confused

RM
This signature is a placebo. You are in the control group.
sschoe2
Posts: 664
Joined: Fri Feb 24, 2017 4:42 pm

Re: Should I Give Up My Earnest Money

Post by sschoe2 »

It depends on the state but in my state earnest money is near useless. The buyer can always find a way to back out, financing, inspection, misrepresentation. It would be worth consulting a real estate attorney.
WhyNotUs
Posts: 1983
Joined: Sun Apr 14, 2013 11:38 am

Re: Should I Give Up My Earnest Money

Post by WhyNotUs »

David Jay wrote: Mon May 17, 2021 5:58 pm
Watty wrote: Sun May 16, 2021 5:06 pmKeeping your townhouse as a rental likely does not make any sense because you would be giving up the homeowners capital gains exclusion and you would also have almost $2 million in real estate in the same city which is a diversification problem. If you sold the townhouse you could easily afford to do all the remodeling you want.
+1
+2
I own the next hot stock- VTSAX
Kookaburra
Posts: 776
Joined: Thu Apr 02, 2020 11:14 pm

Re: Should I Give Up My Earnest Money

Post by Kookaburra »

ResearchMed wrote: Mon May 17, 2021 8:00 pm
Goal33 wrote: Mon May 17, 2021 10:11 am They can’t just take your 50k and then turnaround and sell the house for more. That’s not reality.

Find a RE with a clue.

To OP (and a few others):

Don't forget... sometimes we (OP and others) are the *sellers*.

So... how would it be if you accept an offer, one that is very attractive due to few or no contingencies, and had turned down one or possibly several otherwise "good offers"... just not quite as good, or so it seemed.
You are delighted, everything looks good, and you thus move forward with your own plans, whatever they may be.
Perhaps that includes signing on the dotted line for another property, which is fine, because you know you'll be selling this house and can easily pay off that bridge loan fast (so no worry about that unpleasant rate; it's just for a month or so, right!?). There is that nice new house to look forward to, and where *you* put down what might be much more earnest money than just $50k! After all, you KNEW that you'd be closing soon and how much risk was there in this case, eh?? :happy All is good, even though moving is SUCH a pain.
And/or there are other ways that you've moved forward with plans that can't easily - or can't inexpensively - be changed.
All is good.

Indeed, you wrote on some really wonderful financial website forum :wink: that you JUST ACCEPTED A GREAT OFFER!
YAY YOU! :beer

Ooooops.... :annoyed
Not too long before closing, that nice buyer, the folks you thought loved your house SO much (!!)... er, turns out they DON'T. :shock:
Not only are they not going to close on the house, forcing you to start the listing process over again, but *maybe* one of the other offers is still interested? Or is this market so hot that they panicked at losing out on "their dream home" and they *quickly* had an offer accepted on that next one. [Yay THEM!]
Turns out now that "nice buyer" is threatening to sue you for that earnest money... that money that's intended to partially compensate you for the aggravation and costs of needed to start the process over. Say what!? How much more will THAT cost!?
Plus, your house is now in total disarray! Packing boxes EVERYWHERE!
Packing and moving - GRRRR!

All that nice staging, pretty bedspreads borrowed from BFF but now sent back by FedEx overnight, and those lovely lace tablecloths that you've already sent off to Dear Children (who actually really DID want them - how nice was that!??). And the RE agent had absolutely insisted that you spend $X for a few <whatevers> to help with staging. If only you hadn't already paid to have them returned early...
That grand piano, already moved out (that humongous thing; hard to schedule a good piano mover; lucked out with that time slot!). Too bad; it *really* did look nice in that alcove in the Living Room! Everyone always said it 'made the house on the first impression' :happy
And those stacks and stacks of papers and books you finally are ready to finish up now that x, y, and z have *almost* been all packed up...

Where is that Xanax? Did it already get packed up too!???

:confused

RM
Let me get out my violin and play some sad music for the sellers.

Too bad that none of that is relevant in this inferno market. No one is putting that much effort into staging and prettying something up when you could leave it in disrepair and have a bidding war regardless. Seller could relist immediately and have several offers within hours.
NabSh
Posts: 151
Joined: Fri Dec 25, 2020 12:09 pm
Location: USA

Re: Should I Give Up My Earnest Money

Post by NabSh »

#1. The Ernest money is usually held by an escrow company. (I am not sure about the rules in your state... please check Google) This means you would have to sign a waiver or the seller would have to go to a court to get those funds. The seller would not be able to simply re-list the house untill your waiver. In any market it is usually a bad sign to hold the house in pending and re list the house. This means if you play the hard ball you will probably get your Ernest funds back.

#2. Since there is a discrepancy between the country records and appraisal, it's another possibility to back out. Specially if the seller knew (past appraisal) and did not disclose. Another reason to try to play hard ball.

Option 1: Ask for the seller to accept the new appraisal as the closing price. Best case scenario.

Option 2: Ask your realtor for advice and do tell them you are not leaving your Ernest money. See what advice they offer (or deal ). Their goal is to make the deal.

Option 3: ask the seller, buyer agent, seller agents and yourself to split the difference 4 way. This I would only offer as last option, if 1 and 2 do not work (Rule#1. Do not show your card).

Option 4: if you really like the house buy it on current offer price.In the long run it probably would not matter.

Please do let know how it went.
rascott
Posts: 2653
Joined: Wed Apr 15, 2015 10:53 am

Re: Should I Give Up My Earnest Money

Post by rascott »

sschoe2 wrote: Mon May 17, 2021 8:07 pm It depends on the state but in my state earnest money is near useless. The buyer can always find a way to back out, financing, inspection, misrepresentation. It would be worth consulting a real estate attorney.
That assumes one had a contract with contingencies..... which OP specifically did not, in order to "win" the bid.
fyre4ce
Posts: 1385
Joined: Sun Aug 06, 2017 11:29 am

Re: Should I Give Up My Earnest Money

Post by fyre4ce »

I didn't read all the other responses, but will chime in here.

Don't get pulled off the mark by the asking price or the appraisal. In a hot real estate market, houses regularly go for 10, 20, 30%+ over asking price, depending on the area. The asking price is irrelevant; it's a strategy that sellers use to hook in extra potential buyers and start a bidding war. What matters is what other similar houses in the area are actually closing for. Similarly, appraisals are an inexact science, and I wouldn't put much stock at all behind an appraisal coming in low, especially by <10%.

What really matters is how you like the house compared to other similar houses in the area that you could get for the same price. Again, it's not a fair comparison to look at houses that are listed for $1M because they may sell for $1.2M. If houses are selling for 20% over asking, you need to compare it to other houses that are listed for ~$900k.

It sounds to me like you're getting cold feet based on the appraisal. I suspect you'll find you can't get much more house for the price. But, if you do decide to walk away, I'd be honest with the sellers about why, maybe drop some hints about the square footage not matching, and ask if they'll refund the earnest money. A protracted legal battle over the earnest money is not in the seller's interest, because it encumbers the property, which has to sit there off the market while they pay PITI every month. I bet you can get at least a partial refund. If I were you I'd start with my agent, but if you don't get the answer you want you could consult a real estate attorney. $50k is enough that I would not walk away from it without a fight.
iamlucky13
Posts: 2458
Joined: Sat Mar 04, 2017 5:28 pm
Location: Western Washington

Re: Should I Give Up My Earnest Money

Post by iamlucky13 »

Wanderingwheelz wrote: Mon May 17, 2021 12:47 pm
nitpick wrote: Sun May 16, 2021 3:31 pm
Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
This is the best advice! Lawyer up if needed!
I thought so too.
I would like to think so, but note the post where RelaxNoMore reported there was language included in their contract regarding buyer verifying square footage.

I presume the lawyer he consulted who said his chances of recovering the earnest money are slim had considered that language.
lawlopez
Posts: 31
Joined: Thu Jul 02, 2015 6:52 am

Re: Should I Give Up My Earnest Money

Post by lawlopez »

Perhaps they will get a better offer and return the earnest money.
User avatar
ResearchMed
Posts: 11736
Joined: Fri Dec 26, 2008 11:25 pm

Re: Should I Give Up My Earnest Money

Post by ResearchMed »

Kookaburra wrote: Mon May 17, 2021 8:22 pm Too bad that none of that is relevant in this inferno market. No one is putting that much effort into staging and prettying something up when you could leave it in disrepair and have a bidding war regardless. Seller could relist immediately and have several offers within hours.
... not if the buyer is contesting the earnest money and won't release the contract... (regardless about any staging or planning on a bridge loan for a very short period of time, or anything else mientioned).

That contract can cause some serious time and possibly money problems if one party decides to be stubborn. It's not automatically as simple as some seem to suggest, or at least not as simple in all states. (How this would actually work could differ by state, of course.)

Would that happen? Probably not, but it's a risk if someone wants to play hardball, such as a buyer wanting that earnest money back in this case, if the seller doesn't want to return it.

I was (obviously, I thought) being a somewhat melodramatic, but to make a point... that one can't necessarily just walk away as though there is no harm to the other party. One never knows what their situation, including any complications, really is.

RM
This signature is a placebo. You are in the control group.
rascott
Posts: 2653
Joined: Wed Apr 15, 2015 10:53 am

Re: Should I Give Up My Earnest Money

Post by rascott »

In the real world it comes down to negotiation and something that both parties can live with.

The seller likely has a good legal claim upon the full $50k..... but it won't be released until the buyer signs off on it. If buyer refuses, seller then has to file a lawsuit.... and in the meantime can't put the house back up for sale. Can be pretty much guaranteed the seller doesn't want to go that route in a hot seller's market.

So what almost always occurs is some level of compromise.

The last deal I was involved in under similar circumstances, half the EM was returned. But it was a lot lower amount than being discussed here. If I was buyer I'd offer $10k for the inconvenience.... and not budge for a while.
Hazel-Rah
Posts: 99
Joined: Sun Oct 12, 2014 2:56 pm

Re: Should I Give Up My Earnest Money

Post by Hazel-Rah »

My take-away from this unfortunate ordeal is to use an experienced real estate agent and loan officer. These two professionals should have been explaining everything along the way. The onus is on the buyer to fulfill his obligations and try to get himself a better deal. I tend to think there is more to this story than meets the eye. Waiving all contingencies is something else. I would have thought that the real estate agent would protect the buyers interests better by shortening up the timeframe to collect the appraisal or placing expiration dates on offers, or escalation clauses in the event of being outbid. I don't know the Seattle market but it just feels like it didn't need to come down to this if everyone had been diligent in their duties.
User avatar
RickBoglehead
Posts: 6640
Joined: Wed Feb 14, 2018 9:10 am
Location: In a house

Re: Should I Give Up My Earnest Money

Post by RickBoglehead »

RelaxNoMore wrote: Sun May 16, 2021 9:33 pm We consulted a attorney last week...
We always have an attorney in place for any real estate transaction, buying or selling. If we buy, the contract states that our attorney has X days to review any signed agreement. If selling, we have the attorney prepare the contract ahead of time, or put in the same clause. While the attorney might not have put in language that would have allowed return of the earnest money in this case, he would have been notified immediately of the square footage discrepancy and then the appraisal discrepancy. As I pointed out earlier, an inspector should have noted that significant of a square footage discrepancy IMO.

As to no contingent purchases, I've commented on multiple threads that I would not participate in them under any circumstances, as a Buyer. As a Seller, if that's what the market bears, so be it. We're possibly in the market to buy a retirement home this year, and emotion isn't going to drive that decision. We may end up Selling to take advantage of the market, and then rent for a period until we find a home under acceptable conditions.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
User avatar
RickBoglehead
Posts: 6640
Joined: Wed Feb 14, 2018 9:10 am
Location: In a house

Re: Should I Give Up My Earnest Money

Post by RickBoglehead »

Hazel-Rah wrote: Tue May 18, 2021 1:44 am My take-away from this unfortunate ordeal is to use an experienced real estate agent and loan officer. These two professionals should have been explaining everything along the way. The onus is on the buyer to fulfill his obligations and try to get himself a better deal. I tend to think there is more to this story than meets the eye. Waiving all contingencies is something else. I would have thought that the real estate agent would protect the buyers interests better by shortening up the timeframe to collect the appraisal or placing expiration dates on offers, or escalation clauses in the event of being outbid. I don't know the Seattle market but it just feels like it didn't need to come down to this if everyone had been diligent in their duties.
Neither a real estate agent nor a loan officer is a lawyer. Neither can provide legal advice. Neither is a contract expert.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
rascott
Posts: 2653
Joined: Wed Apr 15, 2015 10:53 am

Re: Should I Give Up My Earnest Money

Post by rascott »

Hazel-Rah wrote: Tue May 18, 2021 1:44 am My take-away from this unfortunate ordeal is to use an experienced real estate agent and loan officer. These two professionals should have been explaining everything along the way. The onus is on the buyer to fulfill his obligations and try to get himself a better deal. I tend to think there is more to this story than meets the eye. Waiving all contingencies is something else. I would have thought that the real estate agent would protect the buyers interests better by shortening up the timeframe to collect the appraisal or placing expiration dates on offers, or escalation clauses in the event of being outbid. I don't know the Seattle market but it just feels like it didn't need to come down to this if everyone had been diligent in their duties.
It's not just the Seattle market. All across the country buyers are submitting offers waiving all contingencies, as that's often literally the only way to get an offer accepted in this crazy market. Highly likely seller accepted this buyer's offer specifically because there were no contingencies.... so this was an intentional strategy, not lack of diligence.
dogagility
Posts: 1635
Joined: Fri Feb 24, 2017 6:41 am

Re: Should I Give Up My Earnest Money

Post by dogagility »

ResearchMed wrote: Mon May 17, 2021 8:00 pm
Goal33 wrote: Mon May 17, 2021 10:11 am They can’t just take your 50k and then turnaround and sell the house for more. That’s not reality.

Find a RE with a clue.

To OP (and a few others):

Don't forget... sometimes we (OP and others) are the *sellers*.

So...
That was awesome! :beer
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
bltn
Posts: 1141
Joined: Mon Feb 20, 2017 9:32 pm

Re: Should I Give Up My Earnest Money

Post by bltn »

Jags4186 wrote: Mon May 17, 2021 12:52 pm For $50k I’d look for anyway to weasel out. Are there Washington State contingencies that can’t be waived? For example, my real estate attorney in NJ said that radon tests almost always come back positive in the area I was looking at and are the easiest way too weasel out of a contract by getting your earnest money back.
I think “weasel out” is the correct phrase. Agree with galawdawg above that the idea of getting your earnest money back may be flawed.
Jags4186
Posts: 5785
Joined: Wed Jun 18, 2014 7:12 pm

Re: Should I Give Up My Earnest Money

Post by Jags4186 »

bltn wrote: Tue May 18, 2021 7:45 am
Jags4186 wrote: Mon May 17, 2021 12:52 pm For $50k I’d look for anyway to weasel out. Are there Washington State contingencies that can’t be waived? For example, my real estate attorney in NJ said that radon tests almost always come back positive in the area I was looking at and are the easiest way too weasel out of a contract by getting your earnest money back.
I think “weasel out” is the correct phrase. Agree with galawdawg above that the idea of getting your earnest money back may be flawed.
This is a business transaction, nothing personal. I would go to great lengths to find any possible scenario or loophole where the $50k comes back to me. Once it’s determined that it is indeed impossible to get back the $50k then you need to decide if you want to buy the house for $1.03mm, since the $50k is gone.
kaudrey
Posts: 1122
Joined: Fri Nov 22, 2013 2:40 pm

Re: Should I Give Up My Earnest Money

Post by kaudrey »

I agree with the others that you should sell your townhouse. We did the exact same thing in the fall - bought a house about 1/2 hour away from the townhouse. Overbid on the house, and then accepted an overbid on the townhouse. Win/win!
presto987
Posts: 398
Joined: Sun Aug 30, 2020 10:58 pm

Re: Should I Give Up My Earnest Money

Post by presto987 »

rascott wrote: Tue May 18, 2021 12:27 am In the real world it comes down to negotiation and something that both parties can live with.

The seller likely has a good legal claim upon the full $50k..... but it won't be released until the buyer signs off on it. If buyer refuses, seller then has to file a lawsuit.... and in the meantime can't put the house back up for sale. Can be pretty much guaranteed the seller doesn't want to go that route in a hot seller's market.

So what almost always occurs is some level of compromise.

The last deal I was involved in under similar circumstances, half the EM was returned. But it was a lot lower amount than being discussed here. If I was buyer I'd offer $10k for the inconvenience.... and not budge for a while.
+1

This is a negotiation. To the extent the seller thinks they can get more if they relist the property, then that is a point in your favor to negotiate getting some of the earnest money back.

But if you go to the seller and beg to have your earnest money released, then they'll know that you're desperate, which will hurt your negotiation stance.
User avatar
greg24
Posts: 4048
Joined: Tue Feb 20, 2007 10:34 am

Re: Should I Give Up My Earnest Money

Post by greg24 »

You offered $230k over asking, but are balking at the appraisal being off by $80k?
Last edited by greg24 on Tue May 18, 2021 10:37 am, edited 1 time in total.
Dave55
Posts: 1150
Joined: Tue Sep 03, 2013 2:51 pm

Re: Should I Give Up My Earnest Money

Post by Dave55 »

greg24 wrote: Tue May 18, 2021 9:43 am You offered $230k over asking, but are balking at the appraisal off by being $80k?
+1

Dave
"Reality always wins, your only job is to get in touch with it." Wilford Bion
EddyB
Posts: 1576
Joined: Fri May 24, 2013 3:43 pm

Re: Should I Give Up My Earnest Money

Post by EddyB »

RickBoglehead wrote: Tue May 18, 2021 6:50 am
RelaxNoMore wrote: Sun May 16, 2021 9:33 pm We consulted a attorney last week...
We always have an attorney in place for any real estate transaction, buying or selling. If we buy, the contract states that our attorney has X days to review any signed agreement. If selling, we have the attorney prepare the contract ahead of time, or put in the same clause. While the attorney might not have put in language that would have allowed return of the earnest money in this case, he would have been notified immediately of the square footage discrepancy and then the appraisal discrepancy. As I pointed out earlier, an inspector should have noted that significant of a square footage discrepancy IMO.

As to no contingent purchases, I've commented on multiple threads that I would not participate in them under any circumstances, as a Buyer. As a Seller, if that's what the market bears, so be it. We're possibly in the market to buy a retirement home this year, and emotion isn't going to drive that decision. We may end up Selling to take advantage of the market, and then rent for a period until we find a home under acceptable conditions.
That’s great in the states where attorney review is a part of the process (and perhaps in really unusual circumstances elsewhere), but as a seller in a hot market where attorney involvement is extremely unusual, I would tell any such buyers to discuss their proposed offer with their attorney in advance. Presenting such a contingent offer on the west coast in these times would be unproductive. In any case, the OP didn’t.
Post Reply