Question on purchasing land directly from owner and earnest money

Hoytvectrix

5 year old buck +
For those that have purchased land directly from an individual and you put down earnest money, what were the terms for how the earnest money was to be used? I am asking because I am in the process of buying a property from an individual and he got a lawyer involved who drafted a purchase agreement. Within the agreement (that neither party has signed yet), is a statement that earnest money will be forfeited if the sale should fall through for any reason.

We are not planning on closing until March 2023 (per the Seller's request). That is a lot of time for things to change between now and then for what is essentially a non-refundable down-payment. Is this a typical clause any of you have seen before? I have read several example purchase agreements and this was not a part of the agreement. I know it is still flexible and we can probably re-write the agreement (and we likely will), I just want to know how typical something like this is.

Thanks.
 

S.T.Fanatic

5 year old buck +
Thats pretty standard.
 

Wind Gypsy

5 year old buck +
I'm a rookie on this but I know we have added in conditions for buyer to keep earnest $ if the seller doesn't honor their commitments, representations of the property, and sale timeline. Seller accepted offer with edits once and I just wasn't high bidder on the other one. Those types of things as well as serious unforeseen or known (to seller) and undisclosed conditions like easements, liens, contamination, etc it seems reasonable for seller to get earnest $ back. If they are not willing to close for 6 months and are unwilling to let you keep earnest $ if they blow up the deal it doesn't sound like they are dealing in good faith to me but maybe i'm overlooking risk it may cause to them if buyer was not dealing in good faith.

Not sure of the dynamics with your deal but seems like something that could be respectfully discussed.
 

PatinPA

5 year old buck +
I'm with Wind Gypsy. I bought from realtor but usually there are protections for the buyer too. If something shows up in the title search or you find out there is a lien of some sort. I don't think I would have a clause for forfeiture for no reason. Probably depends on the amount too. If it's $500 I might not be that worried but if it's $10,000, I want some ways to get it back should something go wrong.
 

bjseiler

5 year old buck +
You'd be crazy not to have your own lawyer looking at it.
 

Tree Spud

5 year old buck +
As you described, this is not normal. You are paying earnest to confirm the contract. If they default you should be entitled to a return of money with any interest.

Earnest money is supposed to be put in a trust that the attorney sets up so it is protected and then distributed per the contract.

I would agree to a contract her attorney set-up until you have your attorney review. Something doesn't pass the smell test.
 

Tree Spud

5 year old buck +
I also find the March 2023 closing date odd. Why so long? Is owner looking to live house on property till then?

I would push for quicker closing and you could allow them use of house for a period of time.

once again ... get an attorney.
 

bwoods11

5 year old buck +
He will have to provide marketable title to you. It says that in almost every purchase agreement. If he fails he can’t sell you the property and you get your $$ earnest money back .
 

Bill

Administrator
what everyone said. You have to be able to purchase title insurance and if the seller backs out or something won't allow you to get the title insurance that's not your fault and you should get the escrow $ back.
 

Turkish

5 year old buck +
For those that have purchased land directly from an individual and you put down earnest money, what were the terms for how the earnest money was to be used? I am asking because I am in the process of buying a property from an individual and he got a lawyer involved who drafted a purchase agreement. Within the agreement (that neither party has signed yet), is a statement that earnest money will be forfeited if the sale should fall through for any reason.

We are not planning on closing until March 2023 (per the Seller's request). That is a lot of time for things to change between now and then for what is essentially a non-refundable down-payment. Is this a typical clause any of you have seen before? I have read several example purchase agreements and this was not a part of the agreement. I know it is still flexible and we can probably re-write the agreement (and we likely will), I just want to know how typical something like this is.

Thanks.
You absolutely must have an attorney look at this.
 

buckdeer1

5 year old buck +
You can find legally written purchase agreements for each state.Usually the buyer give earnest money and then they sign the agreement with the price and any other special requests from either party.Most do say that a good title has to be done.I feel the main thing I want the agreement for is to keep the seller from changing their mind or selling to a higher offer.I never tell anyone until the purchase agreement is signed and sometimes not till closed.Usually I just send copy of agreement to closing company and they do title search.
 

b116757

5 year old buck +
Sometimes I’ll write into the purchase agreement “the entire contract is contingent upon buys partners agreement “ I never say my partner agrees ever no names nothing if something starts to smell like a dead fish during the closing process my partner may decide he doesn’t agree to close the deal.😉
 

Hoytvectrix

5 year old buck +
I also find the March 2023 closing date odd. Why so long? Is owner looking to live house on property till then?

I would push for quicker closing and you could allow them use of house for a period of time.

once again ... get an attorney.
The seller has an existing pasture lease agreement that expires first of March. For whatever reason they wanted to wait till that expired. There are no residences on the property. We are just trying to accommodate.
 

buckdeer1

5 year old buck +
Prorate the lease amount and add it to his payment and then you will receive final lease payment or just word it that the farmer pays the seller the final payment.There are rules if you want to remove the farmer, I don't know what it is from state to state but in Kansas it has to be done by certified mail prior to 30 days before March 1st ,I believe is what it was.Your local FSA can tell you for sure
 

Telemark

5 year old buck +
Sounds weird, and I would not go for it.

is a statement that earnest money will be forfeited if the sale should fall through for any reason.

Any reason? Like the seller changes his mind? Clearly you are over a barrel on that one. Personally I don't deal with people like that. But if you are really keen on that property, get your own lawyer to review and edit the agreement.
 

Tree Spud

5 year old buck +
The seller has an existing pasture lease agreement that expires first of March. For whatever reason they wanted to wait till that expired. There are no residences on the property. We are just trying to accommodate.

Still not clear why that would delay the closing. You could write into the contract preserving the lease and who proceeds go to.
 

yoderjac

5 year old buck +
In my experience, if I go to an attorney and ask them to draft a contract, they will draft it with terms that favor me. When the seller gets the contact, if they don't have an attorney review it and just sign it, we end up with a contract favorable to me. If nothing goes wrong, everyone is happy. If something goes wrong, I'm completely protected.

On the other hand, if the seller does have an attorney review the contract, they will modify it and send it back. There may even be another back and forth between the attorneys. In the end, either we will have what both parties agree is a contract where both sides are fairly protected, or we will not come to an agreement.

Like anything else, there is a risk/reward ratio. Dealing with attorneys is a pan in the butt and is expensive. So, if things all go well, you can save some money as the reward. On the other hand, when dealing with larger sums of money if something does go wrong you can lose a lot more money.

Having said that, many states have "standard" real estate contracts that are fair and balanced as a starting point. If a transaction is cookie cutter, this may be fine. Some states even allow a single attorney to close a real estate transaction representing both sides and have fairness regulations for how the attorney can operate.

Personally, I hire an attorney to represent my interests.

Thanks,

Jack
 

Buckly

5 year old buck +
Sounds weird, and I would not go for it.



Any reason? Like the seller changes his mind? Clearly you are over a barrel on that one. Personally I don't deal with people like that. But if you are really keen on that property, get your own lawyer to review and edit the agreement.
Exactly. The seller could just continue to sell to people in perpetuity and keep canceling and keep all the money. Definitely not how things should be done.
 
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