Can You Get Earnest Money Back During a Pandemic? Discover Your Options

- Dena Landon- contributing author

The reasons that you wanted to buy or move in the first place still exist. You might just want to push the closing date out, or add provisions to protect your move. But if you decide to exit the deal, can you back out of it and get your earnest money back in the middle of a pandemic?

Add a COVID-19 real estate addendum

When writing your purchase agreement, you can add addenda and contingencies that protect yourself. The most common is an inspection contingency, but others may apply to financing or a closing date.   The Texas Association of Realtors  have begun to a COVID-19 addendum related to coronavirus that agents can use with clients.

HAR has distributed coronavirus addendum to members at the beginning of March.  It allows people a grace period to extend closing dates.  Many agents are adding the document retroactively to pending transactions, as most buyers and sellers have been reasonable.

Some agents are working with lawyers to draft an addendum. A coronavirus addendum should definitely be included in any new contracts, but they can also be added to contracts already underway to help extend deadlines and protect everybody. As long as everyone agrees on them, you can add them to a signed agreement.

What goes into an addendum?

If you’re writing a contrat now, or the seller has agreed to add a coronavirus addendum, what should it include? The addendum should address timing, financial worries, and health concerns.

Time constraints

Real estate contracts include timelines for how long the buyer has to get an inspection, an appraisal, and to close on the house.  Buyers might not be able to get most or all of these things done on the timeline during the pandemic.  In Texas, appraisers and inspectors are considered essential but limitations could therefore apply to their work — they might have to appraise your home remotely or delay the inspection. In some cases, someone  may have to perform an alternative appraisal (or the bank won’t accept anything other than a standard 1004 appraisal).   As stated by TAR:

" Voluntary and mandatory quarantines and the closure of government and private offices may impede the ability of parties to successfully fund and close transactions."

Financial problems

Maybe you need to back out of the sale because you lost your job. Most purchase agreements should already contain a financing contingency that allows the buyer to back out of the sale if they can’t obtain a mortgage.

Health and welfare

If the seller knows that they have been exposed to or have COVID-19 and don’t disclose that to the buyer, it could potentially nullify the contract in some states. At least one state — Texas — has advised sellers that COVID-19 counts as a “known health hazard,” and they must disclose if they know they have it.  TAR also states:

" Section 8 of the Seller’s Disclosure Notice asks if the seller is aware of “any condition on the property which materially affects the health or safety of an individual.”

TAR goes on also to state:

"Generally speaking, you can’t terminate a contract based on a diagnosis (and get your earnest money back) unless the seller has withheld information about the house. You may be in a gray area, and you should consult with an attorney, if the diagnosis came after executing the purchase agreement."