Non-refundable earnest money?

[torch76]

Last week we signed a contract to sell our townhouse. They didn't want to close until March 21. We said fine because they offered full price and it sold in 4 days. It seems to be a solid sale. They love our house and have great credit. Plus, we thought we would need the extra time to find and close on our new home. Well, this weekend we found our dream home. We put in an offer ($10,000 under listing)and they came back with $5,000 more than we offerend. Fine. They also upped our earnest money to $3,500. Fine. The hard part is that they want the earnest money to be non-refundable. So if for any reason the sale of our townhouse falls through or our financing doesn't come through we are out the $3,500. If the townhouse fell through we would probably get their $1,000 earnest money so we would be losing $2,500. Is it common to ask for non-refundable earnest money? Should we risk that money in order to get the perfect house? They already countered. Is it acceptable to counter their counter? Ahhhhh! I'm so stressed.

[villanelle75]

It is perfectly acceptable and fairly common (at least, in the market where I live) to counter a counter.

I don't' know how common it is to have the earnest money be non-refundable, but I have heard of it before so it isn't something that is never done. My big concern about doing this would be the home inspection. IF you find major issues with the house you would lose that money is you back out. And since the seller knows that, you wouldn't really have much leverage when trying to get him to pay for repairs either.

It might still be wort it to me though since you seem pretty confident in your ability to get financing, but talk with your agent to see if he thinks.

[BTB]

Is it common to ask for non-refundable earnest money?

I could be way off on this - I've only ever bought a house once, and never sold - but I thought the whole point of earnest money was that it's non-refundable. Like a deposit, it's the 'consolation prize' if the contract's broken. Just like you're counting on the $1,000 from your buyer should they not meet their end of the bargain, your seller wants to count on that $3,500 from you if you don't come through for them.

You can counter a counter, and they can counter your counter counter, and you can counter that. There's no limit to the number of counters an offer can go through, except the frustration level, when one side finally calls it quits.

I would ask for a clause that the earnest money is refundable if the home doesn't pass inspection. And if this is your "dream home", I would try to get it; at the same time I'd try to remind myself that there will always be another "dream home" and that while a home is a tremendously emotional thing, you've got to look at the buying and selling of homes as business deals. It's tough, and I probably wouldn't do a good job with that, but it's the advice I got (from people IRL and from reading "100 Questions Every First-Time Home Buyer Should Ask") and I would sure try. :)

[Sophia]

I could be way off on this - I've only ever bought a house once, and never sold - but I thought the whole point of earnest money was that it's non-refundable. Like a deposit, it's the 'consolation prize' if the contract's broken. Just like you're counting on the $1,000 from your buyer should they not meet their end of the bargain, your seller wants to count on that $3,500 from you if you don't come through for them.

That's how I see earnest money as well.

Both times I've bought houses the earnest money was nonrefundable and I thought nothing of it because it makes sense for it to be nonrefundable. I can't remember if there was a clause relating to the house not passing inspection.

[Katie1]

As previous posters have said, the whole point of earnest money is that it is non-refundable. The deposit money is there to protect the sellers from the possibility of you promising to buy the house and then backing out without a good reason after they've taken the house off the market for you and wasted market time. There are usually extra clauses in the contract that spell out certain situations in which it would be refundable- ie, the inspection uncovers that the house needs more than $xx.xx worth of repairs. I was a realtor for three years, so I am speaking from experience.

Did you include a clause in your offer that states that the new purchase is contingent on the sale of your old home? This may be where the confusion is coming in. If you did include such a clause and the sellers are accepting it, then in that case I believe the earnest money should be refunded if your sale falls through. However, in this market there are very few sellers who are accepting contingencies for the sale of buyers' current homes.

[Asha]

when i bought my house, the earnest money was refundable. it was refundable if we didn't obtain a mortgage or we were not pleased with the results of the inspection. i thought the point of earnest money was so that the potential buyer just can't back out for no reason thus wasting the seller's time and possibly money.

[jajacobsen]

I ditto everything BTB said.

[mindy75]

when i bought my house, the earnest money was refundable. it was refundable if we didn't obtain a mortgage or we were not pleased with the results of the inspection. i thought the point of earnest money was so that the potential buyer just can't back out for no reason thus wasting the seller's time and possibly money.

Ditto this. We've bought 2 houses and sold one and every time the earnest money was 1. set between us and our realtor and 2. Refundable to us based on 2 contingencies that we put in our contract (obtaining financing and acceptance of the home inspection). I thought the earnest money was money that would be split between the agents and the seller if the buyer just randomly backed out. We also had ours credited toward our closing, so it was basically refunded in the end.

[torch76]

Thanks for all your replies.

Earnest money is non-refundable if you just change your mind and back out on a contract. The way I understand it is that it IS refundable if you loose your financing, find somthing really wrong during the inspection or if their is a contingency that your house will sell first.

I would never agree to it if it was non-refundable before the inspection period. So basically our earnest money would be UNrefundable if the sale on our townhouse falls through or if we loose our financing. In most cases it would be refundable if these things happen.

I am leaning towards yes. The house is in a great neighborhood and very well priced. I don't think it will be easy to find something similar to this at the same price. It is going to be hard to convince my husband. He is more conservative with money than I am and can't imagine loosing $3,500 when it is in the hads of the people buying our property and not in our control.

[Katie1]

torch76- Thanks for the clarification. You're right, in most cases the deposit IS refundable if financing falls through. However, it is common for sellers to not allow the deposit to be refunded if the sale of your current home falls through. I think it would be a fair counter-offer to tell them that you will not expect refund if you have to back out due to your home not selling, but that you do want the deposit refunded if you can't get financing- assuming that you have already provided them with a pre-approval letter so that they know that it is highly likely that you WILL get financing. If I were you, my main concern with the financing contingency would be that the house would not appraise for the purchase price you have offered, in which case the bank will deny you regardless of whether you can afford it or not. That's really a situation that would be out of your control.

[JRPAGV]

It's definitely common and acceptable to counter-offer an offer. We've been going through a similar situation.

With the new house we're buying, we talked them down on the earnest money since we'll be closing fairly quickly. They agreed to let us pay only $2,000 and it will go toward closing fees, etc.

When we put an offer on this new house, we made it contingent upon the successful closing of our current home. They didn't seem to mind that contingency since we provided documentation that our house was already under contract and the people were qualified to buy it (so we showed that there shouldn't be a problem).

Good luck with everything! Stop by your LiveJournal to update us all. ;)