How do you handle earnest money deposit disputes or refunds?

1 Understand the contract

The first step to handle EMD disputes or refunds is to understand the terms of your purchase contract. This is the document that spells out the conditions and contingencies of the sale, such as inspection, appraisal, financing, and closing. It also specifies how much EMD you have to pay, when, and to whom. Most importantly, it states under what circumstances you can cancel the contract and get your EMD back, and when you may forfeit it to the seller. Read the contract carefully and consult a real estate attorney if you have any questions.

2 Follow the deadlines

The second step to handle EMD disputes or refunds is to follow the deadlines set by the contract. For example, if you have a contingency that allows you to back out of the deal if the inspection reveals major defects, you have to notify the seller or their agent within a certain period of time. Otherwise, you may lose your right to cancel and get your EMD back. Similarly, if you have a financing contingency that requires you to get a mortgage approval by a certain date, you have to meet that deadline or risk losing your EMD. Keep track of the dates and communicate with the seller or their agent promptly.

3 Negotiate with the seller

The third step to handle EMD disputes or refunds is to negotiate with the seller if you encounter a problem that prevents you from closing the deal. For example, if the appraisal comes in lower than the agreed price, you may ask the seller to lower the price or agree to split the difference. If the seller refuses, you may have to walk away from the deal and request your EMD back. However, the seller may dispute your claim and try to keep your EMD as compensation for their lost time and opportunity. In that case, you may have to compromise and offer to share some or all of the EMD with the seller.

4 Involve a mediator or arbitrator

The fourth step to handle EMD disputes or refunds is to involve a mediator or arbitrator if you and the seller cannot reach an agreement. A mediator is a neutral third party who helps you and the seller communicate and find a solution. A mediator does not make a decision for you, but rather facilitates the negotiation process. An arbitrator is a neutral third party who hears both sides of the dispute and makes a binding decision. An arbitrator's decision is final and cannot be appealed. You may have to pay a fee for mediation or arbitration services, depending on your contract or local laws.

5 File a lawsuit

The fifth step to handle EMD disputes or refunds is to file a lawsuit if mediation or arbitration fails or is not an option. This is the most drastic and costly option, and should be avoided if possible. A lawsuit involves hiring a lawyer, filing a complaint in court, and going through a lengthy and complex litigation process. You may have to prove that you had a valid reason to cancel the contract and that the seller breached the contract or acted in bad faith. You may also have to face counterclaims from the seller, who may sue you for damages or specific performance. A lawsuit may take months or years to resolve, and there is no guarantee that you will win or get your EMD back.

6 Prevent EMD disputes or refunds

The sixth and final step to handle EMD disputes or refunds is to prevent them from happening in the first place. You can do this by being careful and realistic when you make an offer, by choosing a reputable and trustworthy seller or agent, by conducting thorough due diligence on the property, by securing your financing in advance, by being flexible and cooperative with the seller, and by following the contract and the law. By doing these things, you can reduce the chances of encountering EMD disputes or refunds and enjoy a smooth and successful home buying experience.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?