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Who gets the earnest money when a party backs out of a contract?

A mansion located next to the main chairlift at the Aspen ski resort is the center of a million-dollar real estate dispute involving earnest money. The Aspen Daily News recently reported that the buyer of a $17.5 million ski home backed out more than two months after the contingency period had passed.

Earnest money is a type of security deposit that shows a buyer has "good faith" to complete the purchase. This money shows the buyer has serious intentions, because it is typically not refundable unless something goes wrong with the contract. Generally, earnest money is between 1 to 2 percent of the selling price of a home. However, buyers and sellers can negotiate the earnest price. This price tends to be higher in Colorado and other states that are experiencing "hot selling markets."

In the recent case, the seller offered an increased counter-proposal to the buyer's initial offer. The increase resulted from the repairs, improvements and inspections the buyer requested the seller to complete. As a result, the seller requested a 5 percent earnest-money deposit. This situation is not uncommon in multimillion-dollar real estate transactions.

While the buyer had 45 days from the counter-proposal to terminate the contract, the buyer did not choose to terminate the contract until December. Generally, a seller will receive the earnest money if a contingency period passes and a buyer withdraws from the sale. However, sellers will typically need to file a motion to retain the earnest money from escrow if the buyer will not sign a voluntary release.

If you are considering selling or purchasing a property in Colorado, it can be beneficial to speak with an experienced real estate attorney. These transactions can be extremely complex. Attorneys at O'Brien Legal Services LLC can help assist you throughout the entire real estate process.

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