Earnest Money and Terminating a Contract
My buyer clients and the sellers agreed to and signed a contract on a property. However, my clients changed their mind and no longer want to purchase property. My buyers can walk away since they haven’t paid the earnest money or option fee, correct?
No. If the contract has been properly executed by all parties, there is a binding contract even if the buyer has not deposited earnest money. Your clients are not allowed to walk away.
Earnest money is not necessary to make a valid contract. Earnest money is a buyer-performance item required to be deposited after a contract is fully executed. A contract could become effective even if no earnest money is required in the agreement.
Your buyers are still required to deposit the earnest money within the time required for delivery. If the contract calls for a termination option and your buyers timely pay for that option, they would then have the right to terminate the contract within the specified time period.
Source: Texas REALTORS®