A buyer deposits $8,000 in earnest money for a $300,000 home purchase. Before closing, both the buyer and seller agree to terminate the contract due to a mutual decision. Under the TREC contract, what happens to the earnest money?
Correct Answer
C) The disposition of earnest money is determined by the mutual agreement between buyer and seller
When both parties mutually agree to terminate, the disposition of the earnest money is part of that agreement. The parties must agree on how the earnest money will be distributed, and both must sign a release authorizing the escrow agent to disburse the funds.
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Related Topics & Key Terms
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Related Concepts
Equitable title is the buyer's interest in a property after a purchase contract is signed but before closing, giving the buyer the right to acquire legal title in the future. The seller retains legal title until the deed is delivered at closing.
A financing contingency makes the purchase contract conditional upon the buyer obtaining mortgage approval within a specified time period. If the buyer cannot secure financing, they can cancel the contract and receive their earnest money back.
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
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