Posted Jun 20,

By Washington State Business Law and Litigation Lawyer Babak Shamsi

What is Earnest Money?

In the purchase of real estate, it is common for a buyer to put down a deposit called earnest money. This deposit is made to a seller to represent the buyer’s good faith towards buying the real property at issue.  Earnest money is typically held in an escrow account until closing, at which time the deposit will be applied as down payment towards the purchase of the property.

Earnest Money as Damages

Many disputes over the purchase of real estate center around entitlement to earnest money in the event of breach of a Purchase and Sale Agreement.  Purchase and Sale Agreements frequently list the forfeiture of earnest money as the exclusive remedy in the event of a breach by the buyer.  In these cases, the damages for a buyer’s breach are essentially known beforehand, thus constituting a form of liquidated damages.  Additionally, per RCW (1), the earnest money to be forfeited may not exceed 5% of the total purchase price.

When a party to a Purchase and Sale Agreement breaches (or allegedly breaches) the Agreement, and the parties cannot resolve their issues amicably, the escrow officer holding the earnest money will interplead the earnest money deposit funds with the court, leaving the parties to litigate their respective claims of entitlement to those funds.

Experienced lawyers with a background in resolving real estate disputes, particularly those involving breach of Purchase and Sale Agreements, can be helpful in navigating through related legal issues.  At Beresford Booth, our lawyers hold extensive real estate experience, including counseling individuals through disputes over the purchase and sale of residential and commercial properties.  We would be pleased to assist with any real estate issues that come your way.

BERESFORD BOOTH PLLC has made this content available to the general public for informational purposes only. The information on this site is not intended to convey legal opinions or legal advice.

Overview

• Washington state&#;s escrow process is similar to other states where an escrow agent is used to complete the transaction.
• The buyer&#;s funds are held by a neutral third party, as is the purchase contract until an escrow agent verifies that both parties have performed their roles in the transaction
• The escrow company will notify the seller&#;s agent when the title has recorded, and the seller&#;s agent will usually then deliver the keys to the buyer&#;s agent or the buyer.

Step by Step

Part 1: Disclosures, inspections and credits

These are the initial tasks once a buyer is in contract, and are most often done in parallel to Part 2: The mortgage process:

1. An offer is accepted by the seller and a contract is signed. The escrow process begins.
2. A deposit, called earnest money, is deposited with the seller&#;s real estate brokerage, an escrow company, or an attorney depending on the contract (never to the seller directly). Escrow companies are often part of a title company but work as separate divisions.
3. The buyer reviews and signs off on any disclosures. These disclosures vary based on property type but often include things like known flaws with the property, prior improvements or repairs, and potential environmental hazards. Often, a disclosure package is provided by the seller well in advance. In some cases, these disclosures and known defects are disclosed prior to the offer being accepted. Sellers may see this as beneficial to themselves, and believe that buyers will build these pre-disclosed facts into the contract price (and thus sellers may be reluctant to provide any credits for these defects).
4. The buyer elects to perform inspections on the property as agreed upon in the contract. These inspections must be completed by a certain date, which is called the inspection contingency date. The types of inspections vary by property type and situation (and locale), but most buyers have a general contractor inspection. If that inspector calls for more detailed investigation, additional inspections on roofs, chimneys, oil tanks, asbestos, lead paint, and sewer lines are can be some of the more specialized additional inspections that may be necessary.
5. Based on the outcome of inspections, buyers may elect to ask the seller for repair work, closing cost credits, or a reduction in the sale price due to flaws that were uncovered. Sellers have three options: agree to all of the buyers&#; requests, offer a modified solution back to the buyer, or decline to make any amends. In response, the buyer can continue to negotiate, accept the seller&#;s position, or in some cases, end the transaction and recoup their earnest money.
6. The buyer removes or waives the inspection contingency by agreeing to a signed inspection response with the seller, or by failing to make an inspection response request to the seller before the inspection contingency date has passed.

Part 2: The mortgage process

or those borrowing to purchase their home, the mortgage process is usually the most stressful and opaque part of the transaction. It&#;s best to start as early as possible and be ready to produce lots of documentation. The following is the general process in Washington:

1. A buyer submits a loan application to their lender, either directly or through a mortgage broker. See a sample Uniform Residential Loan Application used in Washington State.


2. Within 3 days, the lender sends a &#;Good Faith Estimate,&#; or GFE, to the buyer that is a breakdown of estimated closing costs. The final costs are likely to deviate from this estimate. See a sample GFE at www.oldyorkcellars.com.


3. Before the buyer is ready to write an offer, a pre-qualification with a lender should be acquired. The buyer sends a series of personal financial disclosures to the lender. These vary by situation, but the most commonly requested documents are:
   • Several months of statements for each bank account a borrower holds (including any investment accounts)
   
   
   • Several months of statements for any outstanding loans, lines of credit, or other liabilities. This can also include documentation of rent payments.
   
   
   • Up to two years of tax returns, released to the lender via an authorization submitted by the buyer using IRS form T.
   
   
   • Recent pay stubs and contact information for each borrower&#;s employer. The number of pay stubs varies by situation.
   
   
   • Any other disclosures that are material to a borrower&#;s financial situation. This includes but is not limited to marriage licenses, divorce settlements, child support, liens, bankruptcies, or judgments. If there&#;s something that affects how much money you have on hand that isn&#;t shown by simply looking at your salary, be prepared to document it.
   
   
   • Explanation of any credit inquiries
   
   
   • Substantiation of any large deposits or cash gifts that aren&#;t regular income. In some cases, a large cash gift may look similar to a personal loan by a friend or family member, and lenders will require gift letters from those that gave you the cash gift, stating that the gift was not a loan. They may also ask for itemized deposit slips.
     
     The exact amount that triggers this requirement varies by the situation (for instance, a $1, cash gift may be material to a single borrower that makes $35,/yr but may not be material to a borrower that makes $,/yr), so it&#;s good practice to ask your lender if you suspect you might have a material cash gift or large deposit &#; so you aren&#;t surprised by this at the last minute.
   
   
   • Repeated and updated documentation of any of the above. Keep in mind: to a lender, anything can happen to a borrower&#;s personal financial situation and credit during the escrow process. Thus, you may be asked more than once for the same type of document so that your lender has the most recent pay stubs, rent receipts, bank statements, or other disclosures that may change over time. Any material changes in these documents -or any element of your personal financial situation- may require the lender to reassess your eligibility for the loan for which you&#;ve applied.


4. The lender renders an approval decision, and if approved, issues a pre-approval letter, stating its willingness to fund the mortgage provided certain conditions are met. These conditions usually include appraisal (so the lender can confirm that the property you&#;re buying isn&#;t worth far less than you&#;re paying) but will also generally include any material change in your situation -or the property- as initially disclosed to your lender. Upon final approval from the loan underwriter, a loan commitment letter will be issued.


5. The financing contingency, or loan contingency in Washington is different than in many other states. A buyer&#;s financing contingency extends without an end date unless the buyer specifically waives it. The contract will state a timeline (often 30 days), after which the seller can request that the buyer waive the financing contingency. If the buyer waives the financing contingency, it is removed as of that date. If the buyer does not waive it, after 3 days the seller has the option of terminating the contract. The earnest money would be refunded to the buyer.
   
   Buyers should remember that their financing contingency, and its protection of their earnest money, extends through closing, as long as they do not specifically waive it. To successfully use the financing contingency as a means to end a contract and recoup earnest money, a buyer must show that they applied for the loan within the proper timeline, made a good faith effort to obtain the loan, did not change any of the financing terms in the contract, and have a letter from their lender documenting these points.


6. An appraisal is ordered by the lender or mortgage broker via a central directory of appraisers (often called an Appraisal Management Company or AMC). Choosing a specific appraiser is not possible, but a mortgage broker can reject an appraiser and ask for a new one. If the appraisal comes in lower than the purchase price, the buyer delivers a Notice of Low Appraisal within 3 days to the seller.
   
   The seller can either lower the price of the home, request a reappraisal or reconsideration at the seller&#;s expense, or reject the Notice of Low Appraisal. If the seller rejects the notice, the contract will be terminated and the earnest money will be refunded to the buyer UNLESS the buyer specifically waives the financing contingency within 3 days. In that case, the buyer could accept the purchase price and make the financing work at a lower appraised value, often meaning a larger down payment.


7. Homeowners&#; insurance is purchased (or substantiated, if the property being purchased includes homeowners&#; insurance as part of association fees or similar arrangements), and proof of homeowners&#; insurance is submitted to the lender.
   
   Tip: As this process can be long, arduous, seemingly arbitrary, and is often critical to your homebuying transaction, try to prepare these documents (or at least figure out how to prepare them) in advance.
   
   Also, do not make any changes to your employment or credit until your transaction is complete (not just until you get a loan commitment letter). This means not switching employers even if it results in a higher income, as counterintuitive as that may sound. It also means not leasing or financing a car, opening a new credit card account, or anything else that can affect your credit report.

Part 3: The closing itself

The closing process itself can span a couple of days or even a week, and in contrast to attorney review states, the transaction is not consummated with all parties sitting at the same table. In Washington, an escrow state, closing consists of the following steps:

1. A title search is run early in the purchase process to determine if there are any liens or assessments on the title. Provided the title is deemed &#;clear,&#; title insurance is prepared and the closing proceeds as planned.


2. A buyer&#;s lender sends final loan documents to the escrow agent


3. The buyer signs all closing documents, including the HUD-1 (see a sample HUD-1 here), and the final loan documents. This can happen at the escrow office, or at another location through a mobile notary service. The buyer needs to have a picture ID for the notary at the appointment.


4. The seller signs a set of closing documents at a separate appointment, and often on a different date.


5. The buyer deposits the remaining funds for their downpayment and closing costs to the escrow agent (either via cashier&#;s check or wire transfer)


6. The escrow agent delivers the signed loan documents to the lender.


7. The lender reviews the signed closing documents and wires the loan amount to the escrow agent. This can take hours in some cases.


8. The escrow agent records the deed with the appropriate municipality.


9. When recording numbers come back from the municipality, the buyer receives the keys and, unless indicated differently in the contract, officially takes possession of the property.
   
   Tip: Try to control for any surprises that may come up at the time of closing. Plan on signing loan documents a few days early if possible, and heed the advice not to materially change your employment or credit before closing.

The last thing any homebuyer wants to do is put down money to buy a home and then lose it, but it happens. Your earnest money deposit is an initial deposit that you make when you sign a purchase agreement. In some cases, you may make an earnest money deposit when you make an offer. Unfortunately, there are many ways to lose your earnest money deposit.

If you aren't sure how your deposit will be handled, ask questions at the time you make an offer. Ask to see the wording in the contract that guarantees the return of your deposit, and addresses how long it will take to get your deposit back. Not every purchase contract affords this type of protection.

Learn more about earnest money deposits, how they work, and how to keep yours safe.

What Is an Earnest Money Deposit?

Earnest money is a good faith deposit that is part of the down payment, but it is not the same as a down payment. It is like the buyer saying to the seller, "Yes, I am serious enough about buying your house that I'm willing to put my money where my mouth is."

When a purchase contract is executed, it specifies how much money the buyer is initially putting down to secure the contract—the earnest money deposit—and how much money will ultimately be deposited as a down payment. The down payment is a portion of the home's sale price paid upfront rather than financed as part of the mortgage.

How Much Is an Earnest Money Deposit?

There is no specific earnest money deposit requirement, but potential homebuyers generally put down 1% to 5% of the purchase price as an earnest money deposit. Keep in mind that the amount of your earnest money deposit depends primarily on your marketplace and local custom.

Because there is no set amount, earnest money deposit amounts vary from market to market and across the country. In California, for example, deposits are generally 1% to 3% of the sales price. California buyers do not often put down more than 3%, since most sign a liquidated damages clause that limits the seller to 3% of the purchase price as damages in the event of a default.

If it's a seller's market, with many buyers fighting over limited inventory, it makes sense for the buyer to put down a larger earnest money deposit to entice the seller to accept the offer.

In buyer's markets, a larger earnest money deposit might entice a seller to accept a lower purchase price. It's often the market and local conditions that determine how much you should offer as an earnest money deposit.

How to Protect Your Earnest Money Deposit

When making an offer and submitting your earnest money deposit, it pays to be informed. While issues are rare, be sure you give the deposit to a trusted party. If anything seems fishy, talk to a trusted advisor. It's important to protect yourself and your money from potential scams.

In order to protect your earnest money deposit, keep the following tips in mind:

• Never give an earnest money deposit directly to the seller.
• Make the deposit payable to a reputable third party, such as a well-known and established real estate brokerage, legal firm, escrow company, or title company.
• Verify that the third party will deposit the funds into a separately maintained escrow account.
• Obtain a receipt.
• In general, don't authorize a release of your earnest money until your transaction closes.
  

How You Can Lose Your Earnest Money Deposit

Typically, buyers can lose their earnest money deposit if they don't follow the terms of the purchase contract. For example, the contract may specify when inspections need to be completed and when a buyer can back out of a contract. If a buyer waits to get an inspection and then backs out of the contract after the deadline, they may lose the earnest money deposit.

However, laws vary from state to state, so be sure to read your contract. In California, for example, standard California Association of Realtors (CAR) purchase contracts allow for the return of the earnest money deposit to the buyer within a specified time period, should they elect to cancel the transaction.

If, at that point, the seller refuses to return the deposit without cause, they could end up paying a $1, civil penalty to the buyer. However, not every agent is a member of CAR in California. Other states may have state-mandated real estate forms.

How Escrow Can Protect Your Earnest Money Deposit

Holding your earnest money deposit in an escrow account can help protect you. For example, suppose your purchase agreement had a home inspection contingency. If the seller agreed to make the necessary repairs but never ended up making them, you could choose to back out of the contract.

Because your earnest money is held in the escrow account, the sellers do not yet have your money, and it could be returned to you.

Frequently Asked Questions (FAQs)

Many steps in the home-buying process have adapted with recent times. Most real estate services can now be conducted virtually. Even the earnest-money deposit has joined the 21st century – at least in many parts of the U.S.

Until the virus outbreak, many buyers wrote checks as part of an offer on a home. While Americans routinely use “plastic” or phone apps to pay for products and services, many residential real estate deals still required a paper check, often accompanied with the offer. Buyers – many unaware – were told to carry their checkbook in case they wanted to have their broker write up an offer at that moment.

Fortunately, that custom has slowly been replaced by electronic earnest-money deposits – often straight from the buyer’s phone. Earnnest, for instance, is a digital platform that allows for the secure deposit of funds from buyer directly to the escrow company. The app provides a fully digital, closed network for earnest-money transactions. Other apps used locally include Zoccam and a proprietary software app created by Fidelity National Financial, which owns three title & escrow companies in our area.

The most popular form of earnest-money transfer is through wired funds, in which a bank safely transfers the approved amount to escrow. (Buyers should always be careful when wiring funds – or face some unfortunate consequences.)

There are still questions about earnest money and other financial aspects of residential real estate. Here are four heard from buyers:

How Much Should I Offer in Earnest Money?

Buyers in Seattle/King County should think about making a deposit in the amount of 1%-3% of the purchase price. The median price on a home is currently $, (May ) and 2% of that is $13, If you believe you will face competition for the home, it’s better to up your game and make a larger deposit – as much as you and your financial advisor believe you can afford.

A higher earnest-money deposit could not only help buyers get the home over other offers but it may also allow them to gain more flexibility with the seller on the overall deal. That could include better terms on the closing date or asking the seller to make repairs before move-in.

What Happens to My Deposit?

Honestly, you will likely never see that money again. Don’t worry, though! The deposit would be part of the overall down payment should the seller accept your bid. (If putting a 0% down payment on a VA loan, buyers can get the deposit back at closing.)

The offer includes a commitment from the buyer to provide an amount of money as an earnest effort to buy the home. The deposit can either be a personal or cashier’s check or a promise to electronically deposit the amount to the escrow company (also known as the closing agent), typically within two business days of mutual acceptance. In reality, the check is never handed over to the seller. It stays with either the buyer’s broker or, most often, with escrow after the offer is accepted.

A courier service can transport a physical check along with the signed purchase and sale agreement from the buyer’s broker to the escrow company. Buyers receive a receipt for the initial payment from his/her agent as well as from escrow.

What’s the Difference Between Earnest Money and Down Payment?

These are two separate payments that ultimately both go toward the purchase of the home. Earnest money is the initial step while the down payment is what buyers bring to escrow to complete the purchase at closing (along with your mortgage lender’s portion of the purchase, sent separately by the financial institution).

Can I Get My Earnest Money Deposit Back?

Usually yes, unless buyers fail to follow the agreed contract that requires them to meet all conditions and timelines. And that’s a big “unless” that, hopefully, a buyer’s broker tracks each step for his/her client.

True, many issues can pop up during the final weeks between mutual acceptance and getting the keys. In many cases, an earnest-money deposit is returned after the buyer backs out over a defect or other issue raised during the home inspection. There are other times, for example, when the buyer is unable to get financing. In most of these situations, the buyers can use the specific contingency addendum in the agreement to rescind the offer and receive a full refund. (If a check was deposited, escrow will typically either wire funds to the buyers’ bank account or write a new check in return.)

It’s important to include critical contingencies in an offer that allow buyers to back out of a deal. Without the inspection contingency, for example, buyers risk losing their earnest money when they learn of a defect in the home and want out of the deal.

One small consolation for buyers: Washington state allows sellers to keep an earnest-money deposit of up to 5% of the purchase price when instructed by the agreement. If a buyers’ offer includes earnest money of 6% of the purchase price, for instance, the buyers would at least receive 1% back should they break the deal.

Buyers sometime make an offer on another home that is a better fit. Without providing legitimate cause, they can lose their initial earnest money. In other cases, buyers miss a deadline (usually to complete the home inspection and make requests for repairs) and then make unjustified demands for more time. Sellers don’t like to see a deal fall through but they equally don’t want to have their home off-market while a buyer dawdles.

Bottom line: If they follow the letter and spirit of the contract, buyers can usually get their earnest money returned should they want to back out of the deal.

For more information, check out the chapter on earnest money deposits in my Buyer’s Guide.

When you’re starting your home-buying journey in a hot market like Seattle, you need to make sure you know what you’re able to do to stand out from the competition. 

Taking actions such as choosing the right real estate agent, writing a convincing letter to the seller, making sure your mortgage is approved, and knowing how to find off-market homes for sale can help you get ahead in a cut-throat housing market. 

Another thing that can give you a leg up when starting the process of buying (or selling) a home is an earnest money deposit.

What Is an Earnest Money Deposit?

An earnest money deposit is a transaction meant to protect both the buyer and the seller during the initial steps of securing a home purchase. 

If you are a potential homebuyer and have found a home you’re seriously interested in, an earnest money deposit — also known as a good faith deposit or holding deposit — is a way to show the seller that you’re committed before closing.

Earnest money deposits are usually 1% to 3% of the total sale price of the home, although the exact amount can depend on the market. In a place like Seattle with a bustling real estate market in the seller’s favor, earnest money deposits closer to 3% are the norm, while in a slower market sellers can get away with putting down a lower amount.

These types of deposits can be considered collateral until both parties have signed a closing contract at the end of the sale, and since they aren’t required, they can be very helpful in a competitive market. If the sale goes through, a buyer’s earnest money deposit goes toward closing costs or their down payment.

[Related: Tips for Budgeting on How Much Home You Can Afford]

The Earnest Money Transaction

In order to keep the earnest money deposit safe in the period of time before closing, the money is typically held in a third-party escrow account until the deal is complete. 

In the past, paper checks were typically the preferred method of payment for both down payments and earnest money transactions for residential real estate deals. 

Recently, virtual payments have been more common, especially since the virus outbreak at the beginning of Digital earnest money transaction platforms such as Earnnest and Zoccam help facilitate the secure transferring of earnest money deposit funds into an escrow account. 

Another common form of earnest money transfer is through wired funds, but buyers and sellers should be wary of cyber security risks associated with this method.

How Does an Earnest Money Deposit Protect the Seller?

Earnest money deposits can be thought of as insurance to protect both the seller and the buyer during the time before the transaction has been officially completed. 

In the case of the seller, the absence of an earnest money deposit can be financially disruptive to say the least. 

Imagine that a potential buyer comes forward and tells the seller that they are extremely interested, and the seller takes the home off of the market to begin the closing contract process. If the buyer backs out, the seller has to relist the home and start all over again, taking a potentially huge financial hit.

In this case, an earnest money deposit would help alleviate the costliness of a buyer backing out at the last minute.

[Related: Can I Afford to Buy a Home in Seattle?]

How Does an Earnest Money Deposit Protect the Buyer?

For the buyer, putting down an earnest money deposit, especially one that’s on the larger side of the spectrum, can really make you stand out against other potential buyers in a competitive market by showing your serious intentions and literally “putting your money where your mouth is.” 

Once the deal is closed, this deposit goes toward either your closing costs or your down payment, which can make the initial amount of money you end up putting down more affordable (since you paid this amount earlier in the game).

Earnest money deposits also protect the buyer by allowing them to legally back out of a real estate deal and get this deposit money back if the home falls through on a contingency. If a deal doesn’t go through because of a contingency like a failed home inspection or a buyer who couldn’t sell their existing property in time, then the earnest money deposit can be legally returned to the buyer. 

Contract Contingencies

A sale can only be finalized when certain contract contingencies are met. If these aren’t met at all or within a certain timeline, the earnest money deposit will either go back to the buyer or be forfeited to the property seller. 

Types of contingencies in a real estate contract include:

• appraisal contingency
• mortgage contingency
• inspection contingency
• home sale contingency

Both parties are recommended against forgoing contract contingencies, even in a lightning fast market. These are meant to protect both the seller and the buyer. 

Find out more about these contractual conditions and how they impact the buyer and the seller in our comprehensive Guide to Real Estate Contingencies.

Earnest Money Timeline Overview

Here’s the general timeline from expressed interest to closed sale that includes an earnest money deposit:

1. A buyer expresses interest in a home.
2. A purchase contract is drawn up and an earnest money deposit is placed in an escrow account.
3. The seller takes the home off of the market.
4. A timeline is started for things such as the house inspection or mortgage approval (as outlined in the initial contract).
5. If all contingencies are met, both parties sign the contract, the sale is closed, and the buyer’s earnest money deposit goes toward closing costs or a down payment.
6. The remaining balance on the home is turned into a mortgage.

Seattle Mortgage Planners Can Help

Whether you’re a first-time homebuyer, an existing homeowner, or a seller trying to understand how to navigate Seattle’s hot housing market — Seattle Mortgage Planners can help. 

We have the experience necessary to walk you through every step of your journey, from loan options to rent-back agreements and more. Contact us today to schedule a consultation.

If you are involved in a real estate purchase and sale agreement where a potential buyer has backed out of an offer to purchase a property, you probably want to know who can keep buyers earnest money that was offered as part of their purchase offer.

What is Earnest Money?

Earnest money is a deposit a home buyer submits with an offer to buy a property.  The purpose is to show a buyer that you are serious about purchasing the property and the higher the earnest money amount is, the more likely it is that your offer will be accepted.  &#;Earnest&#; is an old fashioned word to mean your &#;serious&#; about purchasing a property.  The earnest money funds can also be referred to as a &#;good faith&#; deposit and are often held by a third party escrow company as part of the purchase and sale transaction.

How Much Should A Buyer Offer in Earnest Money?

The amount to offer in earnest money really depends on the type of transaction you are involved in and the competitiveness of the market you are in.  The Seattle Metro market is currently hyper competitive so it would be advisable for a buyer to offer more in earnest money if they really want a property so show the buyer you mean business. Typically it is normal to see an earnest money deposit of % of your offered purchase price but keep in mind, having a higher earnest money offer could make the difference of a seller accepting an offer or not.

What Happens to the Earnest Money if the Purchase and Sale Transaction is Not Completed?

If an offer to buy a home is accepted by a seller, then the earnest money paid as part of the offer would be applied to the purchase price.  If however, the buyer backs out of the sale or the seller changes their mind, that could trigger a series of events that would leave the earnest money paid in flux.

Most purchase and sale agreements in real estate include several contingencies that allow a buyer to back out of a transaction and allowing the buyer to receive their earnest money back.  These contingencies include stating that the offer is subject to the buyer obtaining mortgage financing within a certain time period or home inspections that could reveal defects in the property.  In a hot real estate market such as Seattle, Washington, buyers are increasingly making all cash offers and waiving contingencies in order to get their offer accepted by sellers.  This is very beneficial to sellers as they could now be in a better position to be entitled to the earnest money should the sale not go through.

Earnest money deposits are governed in Washington, State by RCW Should the purchase and sale transaction not go through it would be up to the party who feels they are entitled to earnest money paid to make a written demand for all or any part of the earnest money held by the holder (typically Escrow Company).  The holder must then within fifteen days of receipt of the written demand:

(1) Notify all other parties to the transaction of the demand in writing

(2) release the earnest money to one or more of the parties; or

(3) Commence an interpleader action.

RCW further states that &#;the holder&#;s notice to the other parties must include a copy of the demand and advise the other parties that: (a) They have twenty days from the date of the holder&#;s notice to notify the holder in writing of their objection to the release of the earnest money; and (b) their failure to deliver a timely written objection will result in the holder releasing the earnest money to the demanding party in accordance with the demand upon expiration of the twenty-day period. The holder&#;s notice must also specify an address where written objections to the release of the earnest money must be sent.

(4) The twenty-day period commences upon the date the holder places the holder&#;s notice in the United States postal service mail and sends an email &#;&#;

What is an Interpleader Action?

An interpleader action is a civil action, much like a complaint filed to begin a lawsuit in which the holder will initiate a legal case in civil court naming the buyer and seller as defendants in which they can litigate a case over who is entitled to the earnest money paid while the holder is entitled to a reasonable attorney fee for having to file the interpleader action.  The earnest money in question will be deposited with the court where the interpleader action is filed.

Ideally the buyer and seller will be able to work out any problems among themselves before having to deal with an interpleader action and potentially incur further costs, however some disputes may not be able to be resolved causing this issue to have to be litigated within the civil court.

If you live in Washington State and are looking for assistance with dealing with a purchase and sale agreement gone wrong involving who can keep earnest money, give Symmes Law Group a call at to speak to a real estate attorney today.

The last thing any homebuyer wants to do is put down money to buy a home and then lose it, but it happens. Your earnest money deposit is an initial deposit that you make when you sign a purchase agreement. In some cases, you may make an earnest money deposit when you make an offer. Unfortunately, there are many ways to lose your earnest money deposit.

If you aren't sure how your deposit will be handled, ask questions at the time you make an offer. Ask to see the wording in the contract that guarantees the return of your deposit, and addresses how long it will take to get your deposit back. Not every purchase contract affords this type of protection.

Learn more about earnest money deposits, how they work, and how to keep yours safe.

What Is an Earnest Money Deposit?

Earnest money is a good faith deposit that is part of the down payment, but it is not the same as a down payment. It is like the buyer saying to the seller, "Yes, I am serious enough about buying your house that I'm willing to put my money where my mouth is."

When a purchase contract is executed, it specifies how much money the buyer is initially putting down to secure the contract—the earnest money deposit—and how much money will ultimately be deposited as a down payment. The down payment is a portion of the home's sale price paid upfront rather than financed as part of the mortgage.

How Much Is an Earnest Money Deposit?

There is no specific earnest money deposit requirement, but potential homebuyers generally put down 1% to 5% of the purchase price as an earnest money deposit. Keep in mind that the amount of your earnest money deposit depends primarily on your marketplace and local custom.

Because there is no set amount, earnest money deposit amounts vary from market to market and across the country. In California, for example, deposits are generally 1% to 3% of the sales price. California buyers do not often put down more than 3%, since most sign a liquidated damages clause that limits the seller to 3% of the purchase price as damages in the event of a default.

If it's a seller's market, with many buyers fighting over limited inventory, it makes sense for the buyer to put down a larger earnest money deposit to entice the seller to accept the offer.

In buyer's markets, a larger earnest money deposit might entice a seller to accept a lower purchase price. It's often the market and local conditions that determine how much you should offer as an earnest money deposit.

How to Protect Your Earnest Money Deposit

When making an offer and submitting your earnest money deposit, it pays to be informed. While issues are rare, be sure you give the deposit to a trusted party. If anything seems fishy, talk to a trusted advisor. It's important to protect yourself and your money from potential scams.

In order to protect your earnest money deposit, keep the following tips in mind:

• Never give an earnest money deposit directly to the seller.
• Make the deposit payable to a reputable third party, such as a well-known and established real estate brokerage, legal firm, escrow company, or title company.
• Verify that the third party will deposit the funds into a separately maintained escrow account.
• Obtain a receipt.
• In general, don't authorize a release of your earnest money until your transaction closes.
  

How You Can Lose Your Earnest Money Deposit

Typically, buyers can lose their earnest money deposit if they don't follow the terms of the purchase contract. For example, the contract may specify when inspections need to be completed and when a buyer can back out of a contract. If a buyer waits to get an inspection and then backs out of the contract after the deadline, they may lose the earnest money deposit.

However, laws vary from state to state, so be sure to read your contract. In California, for example, standard California Association of Realtors (CAR) purchase contracts allow for the return of the earnest money deposit to the buyer within a specified time period, should they elect to cancel the transaction.

If, at that point, the seller refuses to return the deposit without cause, they could end up paying a $1, civil penalty to the buyer. However, not every agent is a member of CAR in California. Other states may have state-mandated real estate forms.

How Escrow Can Protect Your Earnest Money Deposit

Holding your earnest money deposit in an escrow account can help protect you. For example, suppose your purchase agreement had a home inspection contingency. If the seller agreed to make the necessary repairs but never ended up making them, you could choose to back out of the contract.

Because your earnest money is held in the escrow account, the sellers do not yet have your money, and it could be returned to you.

Frequently Asked Questions (FAQs)

If you are involved in a real estate purchase and sale agreement where a potential buyer has backed out of an offer to purchase a property, you probably want to know who can keep buyers earnest money that was offered as part of their purchase offer.

What is Earnest Money?

Earnest money is a deposit a home buyer submits with an offer to buy a property.  The purpose is to show a buyer that you are serious about purchasing the property and the higher the earnest money amount is, the more likely it is that your offer will be accepted.  &#;Earnest&#; is an old fashioned word to mean your &#;serious&#; about purchasing a property.  The earnest money funds can also be referred to as a &#;good faith&#; deposit and are often held by a third party escrow company as part of the purchase and sale transaction.

How Much Should A Buyer Offer in Earnest Money?

The amount to offer in earnest money really depends on the type of transaction you are involved in and the competitiveness of the market you are in.  The Seattle Metro market is currently hyper competitive so it would be advisable for a buyer to offer more in earnest money if they really want a property so show the buyer you mean business. Typically it is normal to see an earnest money deposit of % of your offered purchase price but keep in mind, having a higher earnest money offer could make the difference of a seller accepting an offer or not.

What Happens to the Earnest Money if the Purchase and Sale Transaction is Not Completed?

If an offer to buy a home is accepted by a seller, then the earnest money paid as part of the offer would be applied to the purchase price.  If however, the buyer backs out of the sale or the seller changes their mind, that could trigger a series of events that would leave the earnest money paid in flux.

Most purchase and sale agreements in real estate include several contingencies that allow a buyer to back out of a transaction and allowing the buyer to receive their earnest money back.  These contingencies include stating that the offer is subject to the buyer obtaining mortgage financing within a certain time period or home inspections that could reveal defects in the property.  In a hot real estate market such as Seattle, Washington, buyers are increasingly making all cash offers and waiving contingencies in order to get their offer accepted by sellers.  This is very beneficial to sellers as they could now be in a better position to be entitled to the earnest money should the sale not go through.

Earnest money deposits are governed in Washington, State by RCW Should the purchase and sale transaction not go through it would be up to the party who feels they are entitled to earnest money paid to make a written demand for all or any part of the earnest money held by the holder (typically Escrow Company).  The holder must then within fifteen days of receipt of the written demand:

(1) Notify all other parties to the transaction of the demand in writing

(2) release the earnest money to one or more of the parties; or

(3) Commence an interpleader action.

RCW further states that &#;the holder&#;s notice to the other parties must include a copy of the demand and advise the other parties that: (a) They have twenty days from the date of the holder&#;s notice to notify the holder in writing of their objection to the release of the earnest money; and (b) their failure to deliver a timely written objection will result in the holder releasing the earnest money to the demanding party in accordance with the demand upon expiration of the twenty-day period. The holder&#;s notice must also specify an address where written objections to the release of the earnest money must be sent.

(4) The twenty-day period commences upon the date the holder places the holder&#;s notice in the United States postal service mail and sends an email &#;&#;

What is an Interpleader Action?

An interpleader action is a civil action, much like a complaint filed to begin a lawsuit in which the holder will initiate a legal case in civil court naming the buyer and seller as defendants in which they can litigate a case over who is entitled to the earnest money paid while the holder is entitled to a reasonable attorney fee for having to file the interpleader action.  The earnest money in question will be deposited with the court where the interpleader action is filed.

Ideally the buyer and seller will be able to work out any problems among themselves before having to deal with an interpleader action and potentially incur further costs, however some disputes may not be able to be resolved causing this issue to have to be litigated within the civil court.

If you live in Washington State and are looking for assistance with dealing with a purchase and sale agreement gone wrong involving who can keep earnest money, give Symmes Law Group a call at to speak to a real estate attorney today.

Although it doesn&#;t happen often, when a buyer or seller unilaterally withdraws from a purchase and sale contract, it represents a material hardship to the other party. Contractual relationships generally assume two willing parties. What happens when one decides to stop performing and withdraw?

Earnest monies. Sellers are compensated for their time and effort when a purchase and sale agreement doesn&#;t work out by a forfeiting of the buyer&#;s earnest monies. The Northwest Multiple Listing Service Form 21, otherwise known as the Residential Real Estate Purchase and Sale Agreement, states in paragraph (b) that the buyer must either: (i) deliver the earnest money within two days of mutual acceptance of the agreement to the selling broker, who will deposit any check with the selling firm; or (ii) deliver any earnest money to be held by the closing agent within three days of receipt or mutual acceptance of the agreement, whichever occurs later. If the buyer fails to close, the seller can keep as earnest money an amount up to five percent of the purchase price. RCW § (1).

Although a fiduciary duty is owed when monies are held in safekeeping for another, you wouldn’t want to go to court to have this duty enforced. Industry best practice is to have earnest monies held by a neutral third party, usually a title and escrow company, and that a signed release by both parties be required to terminate the contract. Some real estate companies still allow the buyer’s or seller’s broker to hold earnest money prior to close of escrow. Although statutory requirements are relatively precise for how a real estate broker accounts for earnest money, it is recommended that a neutral third party hold the funds. This is the cleanest way to avoid litigation regarding earnest monies.

Specific performance. When a seller refuses to sell a contracted parcel, courts can order the seller to sell as contracted if a &#;specific performance&#; clause is included in the purchase and sale contract. &#;Specific performance&#; allows a court to order a seller to sell the property as contracted in order to make good on considerations made by the buyer. Although sellers can get up to five percent earnest monies if a buyer fails to close escrow, buyers don&#;t have a benefit when a seller forfeits their obligations unless the seller can be forced to sell. In most breach-of-contract cases, money damages are the only remedy available. However some courts, including Washington courts, have long held that an order of specific performance is appropriate when a seller breaches a contract to sell. As a result, buyers will want to require that the purchase and sale contract include specific performance in the event of a seller breach.

At Timely Contract, our primary legal services include: real estate contract review, real estate contract drafting, legal opinions for title insurance exceptions, and research, due diligence, and legal opinions for properties.

This posting is not legal advice. Legal advice is based on specific facts. This information is necessarily general in nature.

See related article about real estate contracts in Washington State.

At Timely Contract we have local real estate attorneys who have experience throughout Washington, including: Spokane, Spokane Valley, Liberty Lake, Medical Lake, and Cheney.

* * *

When you’re starting your home-buying journey in a hot market like Seattle, you need to make sure you know what you’re able to do to stand out from the competition. 

Taking actions such as choosing the right real estate agent, writing a convincing letter to the seller, making sure your mortgage is approved, and knowing how to find off-market homes for sale can help you get ahead in a cut-throat housing market. 

Another thing that can give you a leg up when starting the process of buying (or selling) a home is an earnest money deposit.

What Is an Earnest Money Deposit?

An earnest money deposit is a transaction meant to protect both the buyer and the seller during the initial steps of securing a home purchase. 

If you are a potential homebuyer and have found a home you’re seriously interested in, an earnest money deposit — also known as a good faith deposit or holding deposit — is a way to show the seller that you’re committed before closing.

Earnest money deposits are usually 1% to 3% of the total sale price of the home, although the exact amount can depend on the market. In a place like Seattle with a bustling real estate market in the seller’s favor, earnest money deposits closer to 3% are the norm, while in a slower market sellers can get away with putting down a lower amount.

These types of deposits can be considered collateral until both parties have signed a closing contract at the end of the sale, and since they aren’t required, they can be very helpful in a competitive market. If the sale goes through, a buyer’s earnest money deposit goes toward closing costs or their down payment.

[Related: Tips for Budgeting on How Much Home You Can Afford]

The Earnest Money Transaction

In order to keep the earnest money deposit safe in the period of time before closing, the money is typically held in a third-party escrow account until the deal is complete. 

In the past, paper checks were typically the preferred method of payment for both down payments and earnest money transactions for residential real estate deals. 

Recently, virtual payments have been more common, especially since the virus outbreak at the beginning of Digital earnest money transaction platforms such as Earnnest and Zoccam help facilitate the secure transferring of earnest money deposit funds into an escrow account. 

Another common form of earnest money transfer is through wired funds, but buyers and sellers should be wary of cyber security risks associated with this method.

How Does an Earnest Money Deposit Protect the Seller?

Earnest money deposits can be thought of as insurance to protect both the seller and the buyer during the time before the transaction has been officially completed. 

In the case of the seller, the absence of an earnest money deposit can be financially disruptive to say the least. 

Imagine that a potential buyer comes forward and tells the seller that they are extremely interested, and the seller takes the home off of the market to begin the closing contract process. If the buyer backs out, the seller has to relist the home and start all over again, taking a potentially huge financial hit.

In this case, an earnest money deposit would help alleviate the costliness of a buyer backing out at the last minute.

[Related: Can I Afford to Buy a Home in Seattle?]

How Does an Earnest Money Deposit Protect the Buyer?

For the buyer, putting down an earnest money deposit, especially one that’s on the larger side of the spectrum, can really make you stand out against other potential buyers in a competitive market by showing your serious intentions and literally “putting your money where your mouth is.” 

Once the deal is closed, this deposit goes toward either your closing costs or your down payment, which can make the initial amount of money you end up putting down more affordable (since you paid this amount earlier in the game).

Earnest money deposits also protect the buyer by allowing them to legally back out of a real estate deal and get this deposit money back if the home falls through on a contingency. If a deal doesn’t go through because of a contingency like a failed home inspection or a buyer who couldn’t sell their existing property in time, then the earnest money deposit can be legally returned to the buyer. 

Contract Contingencies

A sale can only be finalized when certain contract contingencies are met. If these aren’t met at all or within a certain timeline, the earnest money deposit will either go back to the buyer or be forfeited to the property seller. 

Types of contingencies in a real estate contract include:

• appraisal contingency
• mortgage contingency
• inspection contingency
• home sale contingency

Both parties are recommended against forgoing contract contingencies, even in a lightning fast market. These are meant to protect both the seller and the buyer. 

Find out more about these contractual conditions and how they impact the buyer and the seller in our comprehensive Guide to Real Estate Contingencies.

Earnest Money Timeline Overview

Here’s the general timeline from expressed interest to closed sale that includes an earnest money deposit:

1. A buyer expresses interest in a home.
2. A purchase contract is drawn up and an earnest money deposit is placed in an escrow account.
3. The seller takes the home off of the market.
4. A timeline is started for things such as the house inspection or mortgage approval (as outlined in the initial contract).
5. If all contingencies are met, both parties sign the contract, the sale is closed, and the buyer’s earnest money deposit goes toward closing costs or a down payment.
6. The remaining balance on the home is turned into a mortgage.

Seattle Mortgage Planners Can Help

Whether you’re a first-time homebuyer, an existing homeowner, or a seller trying to understand how to navigate Seattle’s hot housing market — Seattle Mortgage Planners can help. 

We have the experience necessary to walk you through every step of your journey, from loan options to rent-back agreements and more. Contact us today to schedule a consultation.

Overview

• Washington state&#;s escrow process is similar to other states where an escrow agent is used to complete the transaction.
• The buyer&#;s funds are held by a neutral third party, as is the purchase contract until an escrow agent verifies that both parties have performed their roles in the transaction
• The escrow company will notify the seller&#;s agent when the title has recorded, and the seller&#;s agent will usually then deliver the keys to the buyer&#;s agent or the buyer.

Step by Step

Part 1: Disclosures, inspections and credits

These are the initial tasks once a buyer is in contract, and are most often done in parallel to Part 2: The mortgage process:

1. An offer is accepted by the seller and a contract is signed. The escrow process begins.
2. A deposit, called earnest money, is deposited with the seller&#;s real estate brokerage, an escrow company, or an attorney depending on the contract (never to the seller directly). Escrow companies are often part of a title company but work as separate divisions.
3. The buyer reviews and signs off on any disclosures. These disclosures vary based on property type but often include things like known flaws with the property, prior improvements or repairs, and potential environmental hazards. Often, a disclosure package is provided by the seller well in advance. In some cases, these disclosures and known defects are disclosed prior to the offer being accepted. Sellers may see this as beneficial to themselves, and believe that buyers will build these pre-disclosed facts into the contract price (and thus sellers may be reluctant to provide any credits for these defects).
4. The buyer elects to perform inspections on the property as agreed upon in the contract. These inspections must be completed by a certain date, which is called the inspection contingency date. The types of inspections vary by property type and situation (and locale), but most buyers have a general contractor inspection. If that inspector calls for more detailed investigation, additional inspections on roofs, chimneys, oil tanks, asbestos, lead paint, and sewer lines are can be some of the more specialized additional inspections that may be necessary.
5. Based on the outcome of inspections, buyers may elect to ask the seller for repair work, closing cost credits, or a reduction in the sale price due to flaws that were uncovered. Sellers have three options: agree to all of the buyers&#; requests, offer a modified solution back to the buyer, or decline to make any amends. In response, the buyer can continue to negotiate, accept the seller&#;s position, or in some cases, end the transaction and recoup their earnest money.
6. The buyer removes or waives the inspection contingency by agreeing to a signed inspection response with the seller, or by failing to make an inspection response request to the seller before the inspection contingency date has passed.

Part 2: The mortgage process

or those borrowing to purchase their home, the mortgage process is usually the most stressful and opaque part of the transaction. It&#;s best to start as early as possible and be ready to produce lots of documentation. The following is the general process in Washington:

1. A buyer submits a loan application to their lender, either directly or through a mortgage broker. See a sample Uniform Residential Loan Application used in Washington State.


2. Within 3 days, the lender sends a &#;Good Faith Estimate,&#; or GFE, to the buyer that is a breakdown of estimated closing costs. The final costs are likely to deviate from this estimate. See a sample GFE at www.oldyorkcellars.com.


3. Before the buyer is ready to write an offer, a pre-qualification with a lender should be acquired. The buyer sends a series of personal financial disclosures to the lender. These vary by situation, but the most commonly requested documents are:
   • Several months of statements for each bank account a borrower holds (including any investment accounts)
   
   
   • Several months of statements for any outstanding loans, lines of credit, or other liabilities. This can also include documentation of rent payments.
   
   
   • Up to two years of tax returns, released to the lender via an authorization submitted by the buyer using IRS form T.
   
   
   • Recent pay stubs and contact information for each borrower&#;s employer. The number of pay stubs varies by situation.
   
   
   • Any other disclosures that are material to a borrower&#;s financial situation. This includes but is not limited to marriage licenses, divorce settlements, child support, liens, bankruptcies, or judgments. If there&#;s something that affects how much money you have on hand that isn&#;t shown by simply looking at your salary, be prepared to document it.
   
   
   • Explanation of any credit inquiries
   
   
   • Substantiation of any large deposits or cash gifts that aren&#;t regular income. In some cases, a large cash gift may look similar to a personal loan by a friend or family member, and lenders will require gift letters from those that gave you the cash gift, stating that the gift was not a loan. They may also ask for itemized deposit slips.
     
     The exact amount that triggers this requirement varies by the situation (for instance, a $1, cash gift may be material to a single borrower that makes $35,/yr but may not be material to a borrower that makes $,/yr), so it&#;s good practice to ask your lender if you suspect you might have a material cash gift or large deposit &#; so you aren&#;t surprised by this at the last minute.
   
   
   • Repeated and updated documentation of any of the above. Keep in mind: to a lender, anything can happen to a borrower&#;s personal financial situation and credit during the escrow process. Thus, you may be asked more than once for the same type of document so that your lender has the most recent pay stubs, rent receipts, bank statements, or other disclosures that may change over time. Any material changes in these documents -or any element of your personal financial situation- may require the lender to reassess your eligibility for the loan for which you&#;ve applied.


4. The lender renders an approval decision, and if approved, issues a pre-approval letter, stating its willingness to fund the mortgage provided certain conditions are met. These conditions usually include appraisal (so the lender can confirm that the property you&#;re buying isn&#;t worth far less than you&#;re paying) but will also generally include any material change in your situation -or the property- as initially disclosed to your lender. Upon final approval from the loan underwriter, a loan commitment letter will be issued.


5. The financing contingency, or loan contingency in Washington is different than in many other states. A buyer&#;s financing contingency extends without an end date unless the buyer specifically waives it. The contract will state a timeline (often 30 days), after which the seller can request that the buyer waive the financing contingency. If the buyer waives the financing contingency, it is removed as of that date. If the buyer does not waive it, after 3 days the seller has the option of terminating the contract. The earnest money would be refunded to the buyer.
   
   Buyers should remember that their financing contingency, and its protection of their earnest money, extends through closing, as long as they do not specifically waive it. To successfully use the financing contingency as a means to end a contract and recoup earnest money, a buyer must show that they applied for the loan within the proper timeline, made a good faith effort to obtain the loan, did not change any of the financing terms in the contract, and have a letter from their lender documenting these points.


6. An appraisal is ordered by the lender or mortgage broker via a central directory of appraisers (often called an Appraisal Management Company or AMC). Choosing a specific appraiser is not possible, but a mortgage broker can reject an appraiser and ask for a new one. If the appraisal comes in lower than the purchase price, the buyer delivers a Notice of Low Appraisal within 3 days to the seller.
   
   The seller can either lower the price of the home, request a reappraisal or reconsideration at the seller&#;s expense, or reject the Notice of Low Appraisal. If the seller rejects the notice, the contract will be terminated and the earnest money will be refunded to the buyer UNLESS the buyer specifically waives the financing contingency within 3 days. In that case, the buyer could accept the purchase price and make the financing work at a lower appraised value, often meaning a larger down payment.


7. Homeowners&#; insurance is purchased (or substantiated, if the property being purchased includes homeowners&#; insurance as part of association fees or similar arrangements), and proof of homeowners&#; insurance is submitted to the lender.
   
   Tip: As this process can be long, arduous, seemingly arbitrary, and is often critical to your homebuying transaction, try to prepare these documents (or at least figure out how to prepare them) in advance.
   
   Also, do not make any changes to your employment or credit until your transaction is complete (not just until you get a loan commitment letter). This means not switching employers even if it results in a higher income, as counterintuitive as that may sound. It also means not leasing or financing a car, opening a new credit card account, or anything else that can affect your credit report.

Part 3: The closing itself

The closing process itself can span a couple of days or even a week, and in contrast to attorney review states, the transaction is not consummated with all parties sitting at the same table. In Washington, an escrow state, closing consists of the following steps:

1. A title search is run early in the purchase process to determine if there are any liens or assessments on the title. Provided the title is deemed &#;clear,&#; title insurance is prepared and the closing proceeds as planned.


2. A buyer&#;s lender sends final loan documents to the escrow agent


3. The buyer signs all closing documents, including the HUD-1 (see a sample HUD-1 here), and the final loan documents. This can happen at the escrow office, or at another location through a mobile notary service. The buyer needs to have a picture ID for the notary at the appointment.


4. The seller signs a set of closing documents at a separate appointment, and often on a different date.


5. The buyer deposits the remaining funds for their downpayment and closing costs to the escrow agent (either via cashier&#;s check or wire transfer)


6. The escrow agent delivers the signed loan documents to the lender.


7. The lender reviews the signed closing documents and wires the loan amount to the escrow agent. This can take hours in some cases.


8. The escrow agent records the deed with the appropriate municipality.


9. When recording numbers come back from the municipality, the buyer receives the keys and, unless indicated differently in the contract, officially takes possession of the property.
   
   Tip: Try to control for any surprises that may come up at the time of closing. Plan on signing loan documents a few days early if possible, and heed the advice not to materially change your employment or credit before closing.

Posted Jun 20,

By Washington State Business Law and Litigation Lawyer Babak Shamsi

What is Earnest Money?

In the purchase of real estate, it is common for a buyer to put down a deposit called earnest money. This deposit is made to a seller to represent the buyer’s good faith towards buying the real property at issue.  Earnest money is typically held in an escrow account until closing, at which time the deposit will be applied as down payment towards the purchase of the property.

Earnest Money as Damages

Many disputes over the purchase of real estate center around entitlement to earnest money in the event of breach of a Purchase and Sale Agreement.  Purchase and Sale Agreements frequently list the forfeiture of earnest money as the exclusive remedy in the event of a breach by the buyer.  In these cases, the damages for a buyer’s breach are essentially known beforehand, thus constituting a form of liquidated damages.  Additionally, per RCW (1), the earnest money to be forfeited may not exceed 5% of the total purchase price.

When a party to a Purchase and Sale Agreement breaches (or allegedly breaches) the Agreement, and the parties cannot resolve their issues amicably, the escrow officer holding the earnest money will interplead the earnest money deposit funds with the court, leaving the parties to litigate their respective claims of entitlement to those funds.

Experienced lawyers with a background in resolving real estate disputes, particularly those involving breach of Purchase and Sale Agreements, can be helpful in navigating through related legal issues.  At Beresford Booth, our lawyers hold extensive real estate experience, including counseling individuals through disputes over the purchase and sale of residential and commercial properties.  We would be pleased to assist with any real estate issues that come your way.

BERESFORD BOOTH PLLC has made this content available to the general public for informational purposes only. The information on this site is not intended to convey legal opinions or legal advice.