Earnest Money When Seller Refuses to Make Repairs

What happens to earnest money when seller refuses make repairs to property?

3 Answers

You have several "contingency" protections when writing a purchase contract one of which is your property inspection period as defined in your offer. I am writing from California and talking about California Contracts.

The inspection contingency means you have the right after performing an inspection of the home and finding it unacceptable to do the following:

  • Request repairs of the seller; which they are not obligated to perform

  • Request a price reduction

  • Perform the repairs yourself in escrow with the appropriate approvals

  • Cancel the contract

If your inspection contingency timeline has not expired you are entitled to your earnest money deposit returned.

If your inspection contingency timeline has expired you are not entitled to your earnest money deposit returned, but it does not hurt to ask for it back - just don't expect that you will get it.

Good luck.

The answer depends on the terms of the sales contract.  Typically, the buyer places an earnest money deposit and in some instances, the contract contains a home inspection contingency.  The buyer then has a specific period of time to get the home inspepcted and notify the seller if there are any repairs needed.  The seller can do one of three things, under the standard form of sales contract:

  1. He can fix the items requested by the buyer.

  2. He can fix some of the items, and not others.

  3. He can refuse to do any of the repairs.

At this point, the buyer must decide if he wants to go through with the purchase. If the seller fixes everything, the buyer must proceed or his earnest money is at risk. If the seller chooses #2 or #3, it's up to the buyer to decide whether to proceed with the contract, re-negotiate it, or cancel it. If the buyer cancels the purchase because of necessary repairs that the seller won't fix, the buyer would get his earnest money back IF THERE IS A HOME INSPECTION CONTINGENCY in the contract.  If there is no home inspection contingency, the seller is under no obligation to do anything.

Depending upon the language of the escrow contract, you do have a right to enforce the terms of the agreement in the appropriate venue. Alternatively, call up the seller, tell them that they did not perform and you want to the money. If they agree, have them sign a release by and between the parties. If they refuse to sign a release agreement, releasing the money to you, tell them that you will have to enforce your rights under the contract and will take them to court. Depending upon the amount in question and the cost of hiring an attorney, the seller will understand that it is more cost effective to give you what you are legally entitled to under the theory of non-performance of a contract.