Florida Real Estate Broker ExaminationReal Estate Law and RegulationsEasy
A Florida real estate broker receives an offer on a residential property that includes a contingency for the buyer obtaining a specific type of financing within 30 days. The seller accepts the offer. On day 25, the buyer's loan application is denied. What is the most likely outcome for the earnest money deposit if the contract is silent on this specific scenario?
- AThe seller is entitled to the earnest money as compensation for time off the market.
- BThe buyer is entitled to a full refund of the earnest money.
- CThe earnest money will be split equally between the buyer and seller.
- DThe broker will hold the earnest money until the parties resolve the dispute in court.
Show answer & explanationAnswer & explanation
Correct answer: B. The buyer is entitled to a full refund of the earnest money.
If a contract includes a financing contingency and the buyer is unable to secure the specified financing within the agreed-upon timeframe despite good faith efforts, the buyer is typically entitled to a refund of their earnest money deposit.
Why the other options are wrong
- A. The seller is not entitled to the earnest money if the buyer acted in good faith and the contingency failed.
- C. Splitting the earnest money is typically for mutual release or specific default clauses, not a failed contingency.
- D. While a broker might hold disputed funds, the legal outcome based on a failed contingency favors the buyer's refund.
Financing Contingency Failure
A contractual clause stating that if a buyer cannot obtain specified financing within a set period, the contract may be terminated, and the earnest money typically returned to the buyer.
- Protects the buyer from losing earnest money.
- Requires buyer to act in good faith to obtain financing.
- Must be clearly defined in the purchase agreement.
Memory trick: Contingency fails, money 'flows' back to the buyer.