Buyer Terminates Post Due Diligence and Wants E$ Refund.... Wait... What?

  Say it ain't so Eddie! 

There are a few circumstance which could lead to a buyer getting earnest money back post due diligence... Make sure you are aware of them... Eddie B

 

Buyer’s right to EMD refund after end of Due Diligence Period

Release Date: 08-24-2015

QUESTION: I had one of my listings under contract using the Offer to Purchase and Contract (form 2-T), but I’ve been notified by the buyer agent that the buyers have decided they just don’t want the house after all.  The Due Diligence Period is over but the buyers are demanding a refund of their Earnest Money Deposit.  When I told the buyer agent that the buyers will lose their EMD because they terminated after the end of the Due Diligence Period, he challenged me to point out where it says that in the Contract. 

The Contract clearly states that the buyer gets a refund of the EMD if he or she terminates prior to the end of the Due Diligence Period.  But where does it say that if the buyer terminates after the end of the Due Diligence Period, the buyer loses the EMD?

ANSWER: If a buyer terminates the contract prior to the end of the Due Diligence Period, the buyer is always entitled to a refund of the EMD.  On the other hand, although the buyer will generally lose the EMD if he or she terminates after the end of the Due Diligence Period, that is not always the case. 

For example, if the seller is unable to deliver good title to the property, the buyer clearly is entitled to a refund of the EMD notwithstanding the fact that the Due Diligence Period may be over.  Because it depends on the circumstances, there is no “black and white” statement in the Contract that the buyer loses the EMD if he or she terminates after the end of the Due Diligence Period.

The answer to the challenge posed to you by the buyer agent is contained in the definition of “Earnest Money Deposit” in paragraph 1(e) of the Contract, where it states that if the buyer breaches the Contract, the EMD is paid to the seller.  In your situation, the buyers are likely in breach of contract because they’ve decided to terminate after the end of the Due Diligence Period without a “good” reason, meaning a reason that would permit them to terminate the contract, such as the seller’s failure to comply with one of the seller’s obligations under paragraph 8 or the non-fulfillment of one of the conditions set forth in paragraphs 11 and 12.



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