Non-refundable earnest money


#1

I am wondering if it is customary to make earnest money non-refundable in exchange for an extension of the closing date. This would be our first extension of a 75 day contract. We have completed and are satisfied with DD.

We will have over $45k into loan apps and other costs, which we’ll obviously lose should the deal not go through, and now the seller is asking for $25k to be forfeited if we can’t close by the end of the 30 day extension FOR ANY REASON, including the property failing to qualify, i.e. for an unexpected drop in occupancy.

What is customary here? This is a $2m deal, to put it in perspective. Have any of you tried something different that seemed to satisfy the seller? I’m an investor, not a gambler! Or am I thinking about this wrong?

Lin


#2

Lin,

I do know of commercial deals where after the DD period the buyer commits to the earnest money regardless of the outcome.

In the most recent deal I have personal knowledge of, the non-refundable earnest money was $50K on a $850K purchase price. There was no time extension granted, that was just what the buyer would lose if they chose not to buy or could not close for any reason. I think the contract stated they could extend for 30 days with the payment of an additional non-refundable $25K.

They buyer was wholesaling the deal and got a commitment from THEIR buyer for the non-refundable earnest money, so for all three parties the earnest money was considered gone if the buyer could not perform. The deal did close, and all parties seemed to consider the non-refundable nature of the earnest money to be normal.

Anne