The Oklahoman

Earnest money can be honest surprise to first-time buyers

- Richard Mize Real Estate Editor The Oklahoman USA TODAY NETWORK

Earnest money isn’t complicate­d. Honest.

But it can be a surprise if you’ve never bought a house. That’s when I learned about it, the first and only time I made a purchase. It’s money a buyer puts up as a security deposit, to show good faith and seriousnes­s about a purchase.

Not long afterward, a good friend was buying his first house and had to dig around in his seat cushions to find earnest money — because he didn’t know about it either and he was just about tapped out. Neither of us had taken a homebuyer education class.

It seems like in my case it was a couple of thousand dollars, but who knows?

That was nearly 22 years ago, and like taking the driver’s test 41 years ago, registerin­g with the Selective Service 39 years ago and getting a marriage license 24 years ago, it hasn’t come up since.

But I haven’t bought a house since 1999, or let my driver’s license expire since 1980, or been drafted since registerin­g in 1982 or gotten married since 1997. Out of sight, out of mind, as they say.

But earnest money came up the other day on Facebook, along with some confusion surroundin­g it — and Kathy Fowler, a Realtor and state managing broker for eXP Realty, cleared it up.

It’s a kind of inside baseball, but with so many people in the home-buying game in this silly season, earnest money has probably surprised some people, especially any first-time buyers who already find themselves paying above asking price.

I need more money? Now?

Fowler posted the following in a Facebook group for real estate agents and others in the business. I remember wondering about some of this myself.

“Earnest money does not constitute a contract, it is simply an instrument of the contract. If the buyer’s earnest money does not get deposited, then that does not mean you do not have a contract. It means one of the parties has not fulfilled their end of the contract. The seller decides if lack of delivery of earnest money cancels the contract and not lack of delivery of earnest money from the buyer.”

Here it is, chapter and verse (actually, paragraph 16), from the Oklahoma Real Estate Commission-approved Oklahoma Uniform Contract of Sale of Real Estate-Residentia­l Sale.

“UPON BREACH BY BUYER. If at any time prior to closing the Buyer’s Earnest Money should fail for lack of delivery or lack of collection pursuant to Paragraph 2, then Seller may, at Seller’s option,

elect to do one of the following: (i) cancel and terminate this Contract upon delivery of notice of terminatio­n to Buyer, (ii) pursue any other remedy available at law or in equity, or (iii) enter into a written agreement between Buyer and Seller modifying the terms of Paragraph 2 to cure the lack of delivery or lack of collection of the Earnest Money. If, after the Seller has performed Seller’s obligation under this Contract, and Buyer fails to provide funding, or fails to perform any other obligation­s of the Buyer under this Contract, then the Seller may, at Seller’s option, cancel and terminate this Contract and retain all sums paid by the Buyer, but not to exceed 5% of the purchase price, as liquidated damages, or pursue any other remedy available at law or in equity, including specific performanc­e.”

Someone asked, “What does paragraph 2 say in relation to paragraph 16?”

Fowler replied: “Basically the same thing. The Seller has the option to cancel but the lack of earnest money does not automatica­lly void the contract. It’s still a ratified contract without earnest money; it just becomes voidable at the discretion of the SELLER not the agents.”

It’s easy to get lost in legalese. Another agent commented: “I cannot remember the place where I read that the earnest money has to be delivered in 3 business days otherwise there is no contract between each parties.”

No. Here’s Paragraph 2:

“PURCHASE PRICE, EARNEST MONEY, AND SOURCE OF FUNDS. This is a CASH TRANSACTIO­N unless a Financing Supplement is attached. The Purchase Price is $_______ payable by Buyer as follows: Within three (3) days of the execution of the Contract, Buyer must deliver $_______ as Earnest Money, which shall be deposited in the trust account of _______, or if left blank, the Listing Broker’s trust account, as partial payment of the purchase price and/or closing costs. Buyer shall pay the balance of the purchase price and Buyer’s Closing costs at Closing. If Buyer fails to deliver the earnest money within the time required, Seller may terminate this contract or exercise Seller’s remedies under Paragraph 15, or both, by providing notice to Buyer before Buyer delivers the earnest money. If the last day to deliver the earnest money falls on a Saturday, Sunday, or legal holiday, the time to deliver the earnest money is extended until the end of the next day that is not a Saturday, Sunday, or legal holiday.”

Annnd, since you are dying to keep your eyes bleeding, here’s Paragraph 15:

“CHOICE OF LAW AND FORUM: This Contract shall be governed by and construed in accordance with the laws of the State of Oklahoma, without giving effect to any choice of law or conflict of law rules or principles that would cause the applicatio­n of the laws of any jurisdicti­on other than the State of Oklahoma. The Parties agree that all disputes, claims, and causes of action arising out of or related to this Contract shall be decided by either Oklahoma State Courts or Federal Courts in the State of Oklahoma.”

With a home sale then, what happens in Oklahoma stays in Oklahoma in other words, which seems obvious to me. But apparently not, so it’s spelled out in the contract — like earnest money.

Here’s hoping someone lets you know about it before you get to the contract, in case you need to scrounge around your couch cushions earnestly looking for some.

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 ?? RICHARD MIZE/THE OKLAHOMAN ?? A real estate agent’s sign in front of a house for sale on Rocky Mountain Way in Edmond.
RICHARD MIZE/THE OKLAHOMAN A real estate agent’s sign in front of a house for sale on Rocky Mountain Way in Edmond.

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