How to protect buyers earnest money

Question

Hello everyone ,

what kind of addendum or special stipulation should be included in a  purchase and sale agreement/contract to protect the buyer's  earnest money in case you don't get funded within the due diligence period/closing?

Regards,

Samuel

Kevin Mika · Answer

I wanted to add on those two great post.  Your inspection period is one of the best way to get out whole keeping your deposit so negotiate it to the end of contract.  If you do 10-15 day inspection periods and it passes then you’ll have to find another easy way out.  Most investors selling don’t allow this bit everything is negotiable.

Samuel O Medunoye · Answer

Thank you @Charlie MacPherson and @Nathan G.!!!!!!

Nathan Gesner · Answer

Sales contracts already include provisions to protect the earnest money. There should be an inspection phase where you can inspect the property, contracts, and other aspects to determine if the property is as advertised. There is a clause letting you out if you don't obtain the financing you desired, or if there are faults with the Title, or if the property doesn't appraise for the purchase price.

If you talk to a good agent, they can explain all this to you.

Charlie MacPherson · Answer

@Samuel O Medunoye This kind of clause should be standard in your contracts.

Though I think that you're misunderstanding something.  Due diligence is normally about 10 days.  That's the time for home inspection and negotiations on repair items needed.

While your buyer may have a pre-approval, the mortgage commitment comes much later in a standard residential mortgage.  Around here it's commonly about 30-45 days from the time it goes under contract.

That commitment comes after appraisal and full underwriting, which is why it takes so long.

Deposits can be returned for any reason stipulated in the contract.  Most often that's when the buyer wants out as a result of the home inspection or when financing fails.