I recently received a call from a client I had met with a few months ago. She had made the decision to sell her home to her neighbor, who also happened to be her realtor. She felt an immediate sense of trust and comfort with him making the deal seem like the perfect match. Fast forward a couple of months and everything unraveled.
The agreed buyer backed out at the last minute. She had already sold half of her furniture and even canceled her homeowner’s insurance effective on the scheduled closing day. At that moment she had already moved back to Canada and found herself in deep distress. She reached out to me to help get her home back on the market and see it sold.
What made the situation even more disheartening was that she received no earnest money. Her predicament had become worse than if the deal had never begun. As if that wasn’t enough, the real estate market had deteriorated further since she first listed.
This kind of scenario is unfortunately not unheard of. A buyer backing out without legal justification leaves the seller in a challenging position. Without earnest money, the seller lacks compensation for the time the home was off the market, the stress of preparing for closing, and the financial consequences of undone arrangements.
What Sellers Can Do in This Situation
The key first step is to analyze the purchase agreement and establish whether the buyer’s withdrawal violated its terms. If the buyer backed out for reasons that were not allowed by the contract—such as failing to secure financing or simply getting cold feet after all contingencies were satisfied—the seller may be entitled to keep the earnest money as compensation. If the earnest funds were already held in escrow, the seller may have the right to those funds unless the buyer disputes the claim. In that case the earnest money might remain in escrow until the issue is resolved.
That said, outright denial of a refund by the buyer is rare. Often, attorneys on both sides will negotiate a split of earnest money to compensate for a seller’s carrying costs, especially if the market has cooled and finding another buyer will take time.
Why Earnest Money Matters
Earnest money is intended to demonstrate good faith. It typically represents 1 to 5 percent of the purchase price and is held in escrow while the transaction progresses. If a buyer backs out improperly after contingencies expire, the seller usually keeps it.
If the buyer does walk away during a valid contingency period such as due to financing, inspection issues or title complications, they may be entitled to a full refund of those funds.
What the Seller Can Do Next
Time is of the essence in this scenario. The seller should quickly relist the property to minimize carrying costs and avoid further financial strain.
At the same time, consider legal guidance. Depending on local laws and the terms outlined in the purchase agreement, the seller may pursue legal remedies whether that means retaining earnest money, seeking damages for financial losses, or even requesting specific performance in rare cases.
Community Insight
From discussions in homeowner forums, it’s clear that releasing earnest money without agreement is complicated. One user cautioned that escrow won’t release funds without mutual agreement. Proceeding against a buyer over earnest money may result in a long and expensive lawsuit—sometimes overshadowing the value of the money itself. Another noted that if all due diligence was completed and the buyer backs out without a valid reason, not only is earnest money at risk, but the seller could also pursue additional damages for loss of time, additional costs, or market delays.
Final Thoughts
My client’s experience was a harsh reminder of how quickly a real estate transaction can collapse. She believed she had a deal with someone she trusted, yet the backing out left her emotionally and financially exposed. The absence of earnest money compounded the situation, creating a painful setback rather than a resolution.
For sellers, it is critical to understand the importance of earnest money, the power of contract contingencies, and the need for swift action when a deal fails. Legal counsel and a strong comeback strategy relisting the home promptly can help alleviate the damage.