What is Earnest Money Contract Drafting?
An earnest money contract is a legal agreement that enables a homebuyer to put a deposit into a neutral escrow account to reserve a property. It’s a demonstration of good faith and instills confidence in the seller that they will make a purchase.
If you want to draft an earnest money contract, read the rest of this article. Explore what key terms to include in the agreement, how to draft it, and what benefits you stand to gain from hiring a qualified, experienced lawyer.
What Terms Should You Include in an Earnest Money Contract?
An earnest money contract should include core components such as the following:
- Parties. Include the full legal names of the parties involved.
- Property. Make sure you describe the property, such as by including a property address and legal description of it.
- Escrow holder. Write the name of the real estate broker or attorney who will hold the funds.
- Deadlines. There should be clearly stated deadlines for closing the transfer.
- Contingencies. Include conditions to ensure the buyer’s deposit is protected, such as conducting property inspections.
What are Drafting Tips for an Earnest Money Contract?
An earnest money contract requires specific details and clarity to protect your interests. Here are some things to consider.
State the Purchase Price and Deposit
Make sure all financial terms are accurate. Include the total purchase price and earnest money deposit amount. Don’t forget to include deadlines for delivering the funds and information about when and how the earnest money is credited towards the buyer's down payment or closing costs.
Explain Contingencies
Outline all conditions that let the buyer exit the agreement and get a full refund from the deposit. This can include loan approval fails or finding major structural problems during an inspection.
Set Clear Deadlines
You must be clear about all deadlines that apply to the agreement, such as payment deadlines, financing approval deadlines, and inspection deadlines. This prevents ambiguity or delays.
Navigate Defaults
Make sure that you specify what happens if the buyer or seller defaults, such as if the buyer cancels the purchase. Explain who is permitted to keep the money in these situations.
For example, if the buyer defaults, the seller keeps the earnest money, whereas if the seller defaults the buyer can get a full refund. This must be included to prevent future disputes.
Refer to the Purchase Agreement
An earnest money contract must reflect what’s in the property purchase agreement. Refer to it so that you ensure all details, such as the price and property details, are aligned.
Do You Need to Hire a Lawyer for Earnest Money Contract Drafting?
Hiring a lawyer for the drafting of your earnest money contract is in your best interests as it will prevent confusion or challenges, while protecting your interests.
A lawyer can conduct various activities during the agreement drafting process, such as:
- Defining all deposit terms in the agreement. They’ll check all financial amounts are accurate and include them in the contract. They’ll include mentioning payment terms, such as deadlines.
- Protecting your interests. By ensuring that the contract states when the deposit is refundable and can be forfeited, they’ll prevent financial losses.
- Drafting contingencies. A lawyer will state conditions related to financing, inspections, and other requirements that have to be fulfilled before the sale goes through.
- Clarifying both parties’ duties. They’ll clearly define buyer and seller responsibilities so that they know what’s expected of them.
- Addressing disputes. To prevent costly litigation, a lawyer will include dispute-resolution methods in the contract, such as mediation and arbitration.
- Avoiding ambiguity. If there are vague phrases in your earnest money contract, you’ll put yourself at risk of disagreements or other problems. A lawyer will prevent this by using clear, simple language that both parties can understand.
- Keeping the agreement compliant. A lawyer will check that the agreement terms reflect all applicable laws and legal requirements to prevent non-compliance issues or disputes.
- Reviewing the contract. A lawyer will conduct a thorough review of your earnest money contract if you’ve already drafted it. This will ensure all terms and clauses are clear, legally sound, and fair to both parties, giving you peace of mind.
Find a Lawyer for Earnest Money Contract Drafting on ContractsCounsel
If you need to hire a lawyer to draft your earnest money contract, you don’t have to call around to traditional law firms in your area. You should use an online legal platform that makes it easy to access qualified lawyers who have contract drafting experience.
ContractsCounsel is one of the largest online legal marketplaces that connects you to a curated network of vetted lawyers. It’s easy to ask a lawyer on the platform to draft your earnest money contract. Here are the steps to follow from your device:
- Visit the ContractsCounsel marketplace.
- Select ‘One-time project’ and ‘Create or update contract.’ Alternatively, select ‘Contract review’ if you want a lawyer to review your agreement.
- Post your project or request for free. Include information about your agreement so you can hire a lawyer who matches your requirements.
- Wait for bids. Instead of searching for a lawyer, lawyers directly on the platform will send you multiple bids for your project.
- Review the platform’s lawyer data. This includes lawyer information such as the lawyers’ location, field of expertise, years of experience, credentials, and client ratings they’ve achieved for previous projects on the platform.
- Select a lawyer to hire. They’ll draft your earnest money contract for a flat fee.
