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The Buyers Breached the Contract - What happens to the earnest money?

The Buyers Breached the Contract - Does that mean I get to keep their earnest money?

There can be a wide variety of answers to this question. So today we will use this scenario:

We have a buyer who breaches the contract. The sellers do not want to sue for performance. Buyers agree to sign for the release of earnest money which states 50% to seller and 50% to the listing broker. Seller is wondering why they did not get to keep all or at least half of the earnest money.

Here's what the Texas Association of Realtors Residential Real Estate Listing Agreement, Exclusive Right to Sell listing contract says in paragraph 5. D. (1)

So, if the contract were breached before closing occurs, AND... IF their broker is willing to let them have his/her part of the commission, AND there are no fees that need to be paid for such as survey, inspection, title policies, etc.... THEN the seller could, in theory, keep the entire amount. I have NEVER seen this happen.

Obviously, this is not the seller's fault OR the agent's fault. The agent earned the commission, so typically they end up splitting the remaining proceeds after the title company collects for any unpaid bills for the transaction.

Examples of items that would be paid at closing are (but are not limited to): survey, appraisal, termite inspection, repair work.

Often times, after the title company has paid the buyers collections, there is nothing left for the seller and their broker to split.

In my first year of selling real estate, I had a gentleman walk away from a closing where he had put down $10,000 of non-refundable earnest money. Before he left the title company, he signed over the release of earnest money with 50% to the seller and 50% to the brokerage firm.

It was a cash deal and there were no surveyors or appraisers to be paid at closing, so the title company collected their fees and then divided the rest between the seller and the broker.

While this may not happen often, it does happen. This article is not meant to be legal advice as I am a licensed real estate broker associate and NOT an attorney. If you have qustions related to the legal consequences of your listing or purchase contract, please consult an attorney BEFORE signing anything.

The Buyers Breached the Contract - Does that mean I get to keep their earnest money?

This has been brought to you by Joni Bailey, YOUR Huntsville / Lake Livingston Area real estate professional. Before you buy or sell, call Joni Bailey at (936) 650-9017. I look forward to earning your business and exceeding your expectations. 






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Comment balloon 5 commentsJoni Bailey • June 01 2012 09:05PM


Joni, I am always amazed by the attitude people have when wanting to get out of a contract.

I had one recently where it was after the option period AND the 3rd party financing addendum.  It was the second contract that had fallen through and the buyers were not honest with their lender when getting financing in line.  They were unresponsive when trying to get them to respond to requests, answers to repair items, etc UNTIL they realized they were about to lose $2500.  Then they were begging and pleading for mercy.  

I think people sometimes take contracts too lightly.  As you mention, read it before you sign it!

Posted by Tricia Hoffmann (Your Home Free) over 7 years ago

Tricia: Oh my goodness. Many times, the sellers are kind and show them mercy. But it does not always work out that way.

Posted by Joni Bailey, Your Huntsville / Lake Livingston Area REALTOR® (101 Main St. Realty) over 7 years ago

Hello Joni,

Thank you for sharing such an informative post. I myself have never had that happen but I'm sure it has in my neck of the woods as well.

I tend to side with the seller and feel they should get to keep their money....believe it or not in all the times I have had sellers ask me what happens if the buyer walks I never once though that I would get a commission it the deal feel apart.

Thank you for the insight.


Posted by JodiAnn Garone, Bringing you Home! (Century 21 Action Plus Realty) over 7 years ago

Joni:  I am sure that local customs can also have an effect on what happens to the buyer's earnest money if the buyer breaches their contract with the seller... seeing that both you and I are with Texas brokers.

In my experience, I have never seen the earnest money go to the seller's Broker.  I have seen it go to the seller, and I have seen it be released back to the buyer... but never even split up to the seller's broker... the Listing's agent/Broker.

I have been an agent for more than a few years... 39 to be exact, and maybe it is just the way it was done in MY offices that I was associated with.  The last "big name" firm I was with was a RE/MAX office, and I do not remember an instance where the RE/MAX office took part of the buyer's earnest money... and that was over an eight-year period.

Now, mind you, I was not "management"... and was not privy to what always happened, but word gets around.  So... I guess the bottom line is... that it depends.

Good question, and a good topic for discussion.  So... "suggested"

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 7 years ago

We put down earnest money on a home and our loan was not approved, how can I get my money back since the seller has since sold the home to someone else?

Posted by Kathy kinsel over 2 years ago

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