This regularly-scheduled sponsored Q&A column is written by Will Wiard, Arlington-based real estate broker, voted one of Washington’s Best Realtors of 2015 by Washingtonian. Please submit your questions via email.
Q: If a buyer can’t close on a property what happens to the buyer’s earnest money deposit?
A: An earnest money deposit (EMD) is an amount collected from the buyer as a show of good faith when submitting an offer. Often representing one to three percent of the agreed sale price, the amount is normally the buyer’s own cash (not a loan) and must be deposited within five business days after a contract is ratified — unless all parties agree in writing otherwise. Normally, a third party, such as an attorney, title company or real estate company will hold the deposit until the sale moves to closing. At closing, the EMD is given back to the buyer in the form of a credit applied toward the sale or closing cost.
Typically, if the buyer walks away from the deal or can’t close, the seller can go after the EMD. However, it is not guaranteed and not automatically released to the seller. The EMD can only be released to either the buyer or seller if all parties agree in writing or through a court order. In many cases, the buyer and seller will try to work through the issue so the transaction can still close.
Experienced buyer agents will also include addendums or contingencies in the contract that allow the buyer to void the contract in certain situations, without forgoing the EMD. In Virginia, these addendums often allow the buyer to walk away if the property does not appraise at or above the sale price, and/or if something of concern is found during the inspection. Additionally, almost all title attorneys can answer any legal questions you might have regarding the risks of losing the EMD prior to submitting an offer.
Thank you for this week’s question. Please keep them coming [email protected] This is also a great place to reach me for anyone looking to buy or sell a home in the Arlington area.
The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.