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Steven Kitnick

Earnest money is the deposit paid by a prospective Buyer as evidence of their “good-faith” intentions to complete the real estate transaction.� The Buyer is promising to be diligent in their efforts to fulfill the terms of the Residential Purchase Agreement (”RPA”).� Additionally, if the Buyer and Seller agree, the earnest money deposit (”EMD”) may also serve as a source of payment, and act as the Seller’s sole legal recourse, as “liquidated damages,” should the Buyer default, that is, fail to perform in accordance with the terms of the “RPA”.

Earnest money deposits are not required for the creation of a valid and binding “RPA”.� However, it is rare that a “RPA” does not include an “EMD”.� The reason for this is that an “EMD” demonstrates to the Seller that the Buyer is serious about his/her offer. Although the amount of the earnest money deposit varies, it is usually enough to motivate the Buyer to take whatever steps that are necessary to perform as outlined in the “RPA” in the time-frame specified.

The general rule with respect to “EMD” is that the Buyer is entitled to a return of the “EMD” if the transaction does not close through no fault of the Buyer. Conversely, the Seller is entitled to the “EMD” if the Buyer breaches the “RPA”.� However, when a real estate transaction fails, both the Buyer and Seller may claim a right to the “EMD”.�

When a dispute arises here are The Eleven Things Everyone Must Know About Earnest Money Deposits (Nevada Law)

1.� The “EMD” may be deposited with an escrow/title company handling the transaction.� They are a neutral third party that follows the Buyer and Seller joint written instructions.

2.� The real estate brokers and their agents have no authority over the escrow/title company.� Thus, they have no authority to direct the payment of the “EMD” to either the Buyer or Seller.

3.� If the transaction is cancelled, the right to the “EMD” will depend on whether there was a default under the terms of the contract, and if so, who is the party in default.

4.� The “RPA” contains a default provision that everyone should be familiar with because it will dictate what happens in the event the Buyer or Seller defaults.

5.� Neither the escrow/title company nor the brokers or agents have the authority to decide who defaulted under the terms of the contract. Only a court of law can make that decision.

6.� The Buyer and Seller may have agreed to mediate before pursuing legal action. However, if mediation failed or if there was no obligation to mediate, a party may pursue the other in court.

7.� If a dispute arises regarding who is entitled to the “EMD”, the escrow/title company will usually hold the “EMD” until the Buyer and Seller reach a mutual agreement or until they are presented with a court order directing payment.

8.� If the court concludes one party is entitled to the “EMD”, it will enter a judgment in their favor.� The prevailing party can present that judgment to the escrow/title company, which will honor it.

9.� The escrow/title company may� also file an interpleader action asking the court to accept the money and distribute it to the rightful
claimant.� If the real estate broker is holding the “EMD” in their trust account, they may initiate the interpleader action.

10.� The Buyer and Seller must have a “good-faith” dispute because each have a duty to execute documents necessary to release money deposited in escrow. Nevada Revised Statutes Chapter 645A.175 states if a party refuses to execute the document necessary to release the money within 30 days after the escrow agent makes a written request for the execution, the party injured by the failure of the other party to execute the document may collect from that party actual damages of not less than $ 100 nor more than one percent of the purchase price, whichever is greater, the “EMD” deposited in the escrow, and reasonable attorney’s fee.

11.� Real estate brokers, their agents, nor the escrow agents can offer legal advice.� If any party has questions regarding their legal rights, they should seek the advice of an attorney.

Remember:� It is better to compromise because the costs incurred often exceeds the amount of the “EMD” and attorney’s fees.�

Steven Kitnick offers continuing education courses for Nevada real estate licensees.� Visit his website:� �www.NevadaCE.com�

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