REFUND/FORFEITURE CLAUSE

That botched sale we talked about on Tuesday? It ties directly into something we've been covering recently—Offer Letters.

Let’s recap: Most brokers use a one-page offer letter. It usually includes the price, who pays what taxes, and a few basic terms. But here’s the kicker—most of them say nothing about what happens to the earnest money if the deal falls apart.

Now, let’s assume that this was the kind of document used in Tuesday’s story.

What would happen to the buyer?

Nothing. He’d be left waiting for the seller to get a reissued title—possibly for months. Could he sue? Sure. But practically speaking, it would cost him more than he’d ever get back.

So why do brokers still prefer one-pagers?

Because, let’s face it: most people don’t read contracts.

One page feels safe. Digestible. Friendly. Too many details? Sellers tune out.

But this is where problems creep in.

That’s why in Monday’s post, we outlined the critical clauses every offer letter should contain—and among them is one about earnest money refunds and forfeiture.

Sometimes, a single sentence can save a buyer thousands:

“The SELLER agrees to refund the full amount of Earnest Money paid by the BUYER within SEVEN (7) calendar days from notice in the event that:

a. The BUYER realizes that the ‘TITLE CONDITION’ Section of this letter is not satisfied; or

b. The SELLER cannot produce any of the documents mentioned in the ‘DELIVERABLES’ Section of this letter.”

In Tuesday’s case, clause (b) would’ve protected the buyer—because the Original Title would’ve been listed under the Deliverables.

Now, does this clause guarantee that the seller won’t spend the money? No. But it does remind the seller—legally and ethically—that the money isn’t his yet. In accounting terms, it should still be booked as a liability.

Another simple way to reduce the risk? Limit how much earnest money you give.

More on that in tomorrow’s post.