Should I sue for earnest money?
I accepted an offer, from among 3 competing offers, for a single family house in Indianapolis. Part of the reason I accepted the offer was because it included an "as-is" addendum. The buyer is now trying to back out after inspection based on a few items being marked as "poor" condition. Her agent is saying that I misled on the seller's disclosure for marking the mechanicals as non-defective. All mechanicals are in fact functioning and she's referring to the age and maintenance with the inspector advising that they are probably near end of life and will soon need to be replaced (still, non-defective). She is also citing a cracked truss in the attic, a (brand new) garage door that was difficult to close, and several other small repairs. She says that her team lead agrees that any 1 of those items is an out.
In my opinion, none of those items meet the criteria of item #4 of the addendum that they are citing as grounds for release:
4. DEFECT DEFINED: Under Indiana law, "Defect" means a condition that would have a significant adverse effect on the value of the property, that would significantly impair the health or safety of future occupants of the property, or that if not repaired, removed, or replaced, would significantly shorten or adversely affect the expected normal life of the premises.
My take is that the buyer flippantly used an "as-is" condition to make a favorable offer but with no intention of standing by it. I lost my other 2 offers and am now forced to re-list. I think I have every right to keep the earnest money as my actual returns may well be damaged. Should I take it to Small Claims Court?
I say go pay a real estate attorney a few hundred bucks for an hour of their time before you jump to small claims or some other form of legal action
#1 All Forums Contributor
- Investor
- Virginia
@Shadrick Davis
Did buyer also include an inspection contingency? If so then they have a right to back out (or you repair what they request), if there was no inspection contingency then consult an attorney and you may be able to keep deposit
"As-is" doesn't mean the inspection contingency/period is waived unless that is agreed to in writing. I don't know what Indiana's contracts look like but the states I have done business in, you have to explicitly waive the inspection contingency in the contract in order for it to not be in force - otherwise, it defaults to some period (example: Florida, 15 days). Within that contingency the buyer generally gets to walk for any reason.
I don't see how you lost any of the other offers. Deals fall apart on inspection contingencies all the time. The selling agent goes back to the other interested parties and tries to either solicit a re-offer or tells their agent you would be willing to accept their original offer as the first party was unable to perform. Unless you have something that's a real piece of crap, that would be foisted on someone else, and you want to lock someone else in before anyone else figures it out.
I think you are making a poor assumption that the buyer had no intention of standing by the offer. Unless you think they're just crazy people that go around making offers on properties they don't want to buy, why would they make an offer in the first place *and* pay the earnest money that must be high enough that you want to go to court to keep it?
If you have a quality product at a quality price you should have zero problem selling it in today's market.
Hi @Shadrick DavisWhile I am not an attorney, I agree with the Buyer's stance. I have come to this conclusion after reading clause number 3 of the Indiana Association of REALTORS® (IAR) "as-is" addendum, which I believe is the addendum you referred to, based on you quoting clause number four.
Here is a capture of Paragraphs 3 and 4.
As JD Martin pointed out, "As-Is" does not mean the inspection contingency is waived. It is my belief that the cracked truss is a qualifying defect. This type of defect is not an option on the State's disclosure form, so I imagine it was not disclosed. I would like to point out I don't think it was not disclosed purposely or maliciously because it sounds like you weren't aware of it. However, it was one thing that was discovered during the due diligence/inspection period. I want to commend you for filling out the disclosure form to the best of your ability instead of checking all of the "Don't Know" boxes as most investors do. Paragraph three explicitly states earnest money shall be returned if the Buyer elects to cancel the contract due to undisclosed defects.
Here is a video from the Indiana Association of REALTORS® explaining the "As-Is" addendum.
https://www.youtube.com/watch?...
I want to emphasize that I am not an attorney, and I would suggest you seek the help of one.
Quote from @Shadrick Davis:
I accepted an offer, from among 3 competing offers, for a single family house in Indianapolis. Part of the reason I accepted the offer was because it included an "as-is" addendum. The buyer is now trying to back out after inspection based on a few items being marked as "poor" condition. Her agent is saying that I misled on the seller's disclosure for marking the mechanicals as non-defective. All mechanicals are in fact functioning and she's referring to the age and maintenance with the inspector advising that they are probably near end of life and will soon need to be replaced (still, non-defective). She is also citing a cracked truss in the attic, a (brand new) garage door that was difficult to close, and several other small repairs. She says that her team lead agrees that any 1 of those items is an out.
In my opinion, none of those items meet the criteria of item #4 of the addendum that they are citing as grounds for release:
4. DEFECT DEFINED: Under Indiana law, "Defect" means a condition that would have a significant adverse effect on the value of the property, that would significantly impair the health or safety of future occupants of the property, or that if not repaired, removed, or replaced, would significantly shorten or adversely affect the expected normal life of the premises.My take is that the buyer flippantly used an "as-is" condition to make a favorable offer but with no intention of standing by it. I lost my other 2 offers and am now forced to re-list. I think I have every right to keep the earnest money as my actual returns may well be damaged. Should I take it to Small Claims Court?
In addition to what everyone else said, is it really worth the hassle of going to court risking losing money in the process?
You had three offers at once. You shouldn't have any challenges getting 3 more. Now you can disclose what you know, reducing the chances the next buyer backs out over it.
Don't be mad bro.
Thanks all! Quality feedback and it sounds like a clear consensus. Deals indeed fall apart and I guess I was too focused on having missed out on the higher of competing offers by accepting the one with better terms. The property is in good shape other than small repairs and old mechanicals, so I was surprised the buyer pulled back.
My brokerage will rarely accepts an as-is addendum anymore because buyers used it thinking it gave them an edge but then back out when they get cold feet. The addendum allows an inspection but you can’t ask for repairs. To do that, you’d have to amend the PA and select a different inspection contingency). The language allows buyers to back out for any undisclosed defects. Defects is defined in the PA (which most agents haven’t read nor understand). I’ve seen too many back out, site undisclosed defects without stating what. We’ve taken some of these to arbitration and lost. Both times the arbitrator mentioned the addendum does not say defects need to be explained. It’s garbage. We will only do inspection contingency now so they have to send inspection response and we have ability to fix or walk.
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Real Estate Agent IN (#RB17000988)
- Prestige Management
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
If someone approaches you pushing the as-is being a big advantage. Ask them how much o their EMD they are willing to commit as non-refundable. I'd rather receive a $5k non-refundable EMD then a $10k as-is offer with a standard EMD.
You really should consult with an attorney as none of us here on this forum are attorneys with expertise on the laws in your state. I would think that "as is" means just that. That the buyer is buying the house warts and all. Doesn't seem fair for you to have to start the process again but that is life I guess.
If you have a nice home you should try to mitigate your damages and put the house back on the market. You state you had two other offers so that tells me you have a nice home to sell and should have no trouble finding another buyer.
Quote from @Shadrick Davis:
I accepted an offer, from among 3 competing offers, for a single family house in Indianapolis. Part of the reason I accepted the offer was because it included an "as-is" addendum. The buyer is now trying to back out after inspection based on a few items being marked as "poor" condition. Her agent is saying that I misled on the seller's disclosure for marking the mechanicals as non-defective. All mechanicals are in fact functioning and she's referring to the age and maintenance with the inspector advising that they are probably near end of life and will soon need to be replaced (still, non-defective). She is also citing a cracked truss in the attic, a (brand new) garage door that was difficult to close, and several other small repairs. She says that her team lead agrees that any 1 of those items is an out.
In my opinion, none of those items meet the criteria of item #4 of the addendum that they are citing as grounds for release:
4. DEFECT DEFINED: Under Indiana law, "Defect" means a condition that would have a significant adverse effect on the value of the property, that would significantly impair the health or safety of future occupants of the property, or that if not repaired, removed, or replaced, would significantly shorten or adversely affect the expected normal life of the premises.My take is that the buyer flippantly used an "as-is" condition to make a favorable offer but with no intention of standing by it. I lost my other 2 offers and am now forced to re-list. I think I have every right to keep the earnest money as my actual returns may well be damaged. Should I take it to Small Claims Court?
Here is the problem, frankly with any EMD.
In court you have to PROVE damages. That means you must convince the court that any of the other offers would have completed successfully for the amount and conditions you accepted.
I don't even know how you prove that.
The best evidence would be a buyer actually closing with the same set of circumstances as the conditions your buyer turned down.
Without that, You must prove to the judge that you would not have made any additional concessions to another buyer in the sale to make it close, that the other buyer wouldn't have backed out over the same item(s) and that the lender would not have put "fixing the items" as a condition for closing.
You'd need in person testimony from one of the other buyers, in person testimony from their lender, proof of the buyer's ability and intent to close while accepting the "as is" conditions with documentation that they are aware of the (non-defective) items and so on.
The amount you could prove you lost would be the EMD. I don't think you would be awarded damages for lost opportunity.
Usually going to the buyer's agent's broker and discussing the issue gets you the best results.