FSBO Earnest Money Deposit Refund Options

An earnest money deposit refund isn’t exactly a straightforward proposition. In fact, it can easily be a contentious situation. The reasons why are obvious. A buyer takes great interest in a property that’s being sold by the owner. Then, feels confident enough to give the seller a good faith deposit. This essentially takes the hoe off the market. And, the sale is supposed to proceed as normal. That means, inspections, an appraisal, and more due diligence. But, there are instances when one or more party gets cold feet for one reason or another. If you as a buyer have taken the step of transferring a earnest money deposit and you now want it back, you have your work cut out for you.

What to Do before Giving Over a Good Faith Deposit

First of all, it’s very important to understand that once you give the seller a good faith deposit, you are basically locking yourself into the purchase. It’s now a legal commitment. So, before you take this step, you should do your homework. Do as much research on the property as possible. See if there are any recent or previous building permits (especially if there’s an obvious add-on present).

“FSBO owners have a reputation among agents for being tight with a buck: They’re generally trying to sell a home themselves to avoid paying commission fees to a real-estate broker. Further, they may have an emotional and personal attachment to their property. They can take it personally when buyers or their agents want to negotiate.” —Wall Street Journal

You should also conduct a search of the local clerk of court’s records. This can reveal liens and other legal problems. If there aren’t any issues found, it’s probably safe to take the next step. But, you should always work with an experienced, local real estate professional to get the best advice about how to proceed and to get an insider’s take. The point is to be as proactive as possible.

FSBO Earnest Money Deposit Refund Options

Now, there is no way to guarantee you’ll always be completely protected. So, if you are in a position that you need a earnest money deposit refund from a FSBO or For Sale By Owner, you do have some options. Here’s where to look to get a good faith deposit back:

  • The home inspection report. The home inspection is meant to uncover “material defects.” These are issues which devalue the property and/or are safety hazards. This is the first place to look for an escape hatch. If there are any material defects listed in the report, you can exercise the contingency and demand your earnest money back.
  • A low home value appraisal. Another way out is to wait for the home appraisal to come back from the mortgage lender. If the appraisal comes in below the agreed selling price, that’s usually terrible news. But, in this circumstance, it works in your favor. You can request your good faith deposit be returned.
  • Unpermitted work is present. This might or might not show up in the home inspection. But, if you spot any renovations, bring it to the attention of your buyer’s agent. And, get to the local building inspector’s office to see if a permit was required and if one was issued.
  • A search reveals title clouds. The title search is meant to uncover encumbrances which prevent title transfer. Also called “title clouds,” these issues will kill the deal. Hence, you get an earnest money deposit refund.

If you are considering buying or selling a home in Orlando, contact us for the latest market information. We’ll also provide you with the right advice about the local real estate market so you make the best decisions.