Return of Earnest Money justified?

Question

I'm selling a house and have the house under contract. Buyer agent contacted me yesterday to let me know buyers decided to terminate the contract with no reasons provided. Isn't this a breach of contract on the buyer's part? Buyer wants earnest money released and has sent me a form to sign for the release. Are the buyers entitled to receive their earnest money back if they are the ones who choose to cancel the sale? (After further investigation I learned the buyers were afraid rental income from the property would not meet their expectations.) I know buyers have a right to terminate the contract if they choose, but isn't the earnest money considered just compensation to the seller for the breach of contract?

Kenneth Garrett · Answer

If the buyers are under the contingency time frame such as attorney approval, inspection, mortgage approval, etc that is there out.  If the contingency time frames are past and they cancel you are entitled to the earnest money, but check your state and local requirements.  Each state is different.  It sounds like contingency is not the issue they just want out.  The earnest money is never enough when you have pulled your property off the market and lost market time.  It’s happened to me and it stinks when it happens.

Nathan Gesner · Answer

It pays to read your contracts and understand them. You should have a qualified agent representing you that can help navigate situations like this.

DW Watson · Answer

Yeah I just found their out in the contract. Says they have the right to cancel during the due diligence period and get a return of their EM deposit. Thanks for your reply Kenneth.