How Do I get My Earnest Money Back from a FSBO?

Unfortunately, if you’re in this situation, you’re learning what real estate professionals instinctively know to avoid. When a homeowner goes the For Sale By Owner or FSBO route, it’s either because they are an experienced real estate broker or agent; or, the homeowner is trying to save money any way possible.

The latter is most typical, and means getting involved in such a transaction has a lot of potential for problems. In fact, these tend to have the opposite effect on the seller’s finances, because it costs more to have individual professionals like attorneys and title companies do the necessary work to make it a legal, viable transaction, not to mention the cost of marketing, along with the stress of trying to show and sell a home.

If you’ve run into the predicament of sparring with a FSBO, then you’re no doubt feeling frustrated and likely regret your decision. To get your earnest money deposit back, you’ll have to first go through the contract. There are usually escape clauses for buyers, but, you’ll have to either prove one of those or, get ready for a bigger battle.

What You Should Do before Giving Earnest Money to a Seller

When dealing directly with a homeowner, you should definitely do as much as possible to protect yourself. That can be done with a little snooping, and will reduce the chances of being caught in a horrible situation.

First and foremost, start with the property itself. If it has a new roof or just had a room or two remodeled, check with the local building code enforcement office to find out if the proper permits were obtained and the work passed inspection.

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

Another thing you can do is to search public records from the clerk of the court’s office. Enter the property address, as well as the name of the current owner to see if the property has one or more liens against it, or the seller is a defendant in an open civil lawsuit.

Should any of the above be discovered, do not, under any circumstance, give the homeowner an earnest money deposit. Instead, start your house hunt back up again and look elsewhere because this is far more trouble than it’s worth.

Ways You can Get Your Good Faith Deposit Back

If you have a buyer’s agent, it’s certain he or she is thinking, “I told you so.” The problem with the situation is, you don’t truly know what type of individual you are dealing with. If the owner is stubborn enough, he or she might go so far as to dare a lawsuit, strategically thinking that it will cost you a lot more time and money than it’s worth.

That might be an extreme example, but it is possible. Here are some common reasons buyers are eligible for a refund of their earnest money:

  • The home inspection reveals some things in need of repair. This is one escape hatch you can use, if there are such material defects. Keep in mind, these must have substance in order to be effective.
  • The home appraisal came in too low. For FSBO homes, this isn’t uncommon because these types of sellers usually overprice their property from the get-go. Should the appraisal not match the purchase offer price, this too, is a way out. That is, unless the seller agrees to drop the price and allow the transaction to move forward.
  • There is unpermitted work present. As stated above, unpermitted work can be a real problem for a seller, but if you want out, then this is yet another route.
  • There are clouds on the title. Also as previously mentioned, liens and other encumbrances put a stop to a sale.

In addition to these suggestions, depending on the circumstances and time-line, you might be able to rescind your purchase offer.