How Earnest Money Works in Minnesota

By Travis Anderson

In 2011, Travis started his career over and began building his own team; a team that has a different look and feel than most teams in the industry; one built SOLELY for the betterment of the client.

What is earnest money? Why is it important in your real estate deal? You need to be familiar with earnest money if you’re going into a real estate deal. I will give you an overview of what it is, why it’s important, and its practical application in Minnesota.

Just a quick note: I’m not an attorney, so if you have legal questions, it’s best to consult one or check out Minnesota laws directly.

What is earnest money? It is a deposit from the buyer showing serious intent to purchase a home. When a buyer and seller come to an agreement, this earnest money is typically included in the purchase agreement. Once the agreement is accepted, the earnest money goes into the trust account of the listing agent or the seller’s agent.

If there’s no agent involved, the money may go straight to the seller. But in most cases, it’s held by the agent’s firm until the deal is finalized.

What happens with that money upon cancellation? If the contract, the purchase agreement, has clauses that allow for cancellation, like inspection, mortgage, or home sale contingencies, it’s common for the agreement to be canceled. In these cases, both the buyer and seller sign a cancellation agreement, and the earnest money is fully refunded to the buyer.

In rare instances, the seller could try not to cancel the earnest money, and the buyer would have to sue the seller for it.

As brokers and agents, we understand the agreement and try to get our sellers to do the right thing and refund the earnest money. If they insist on not returning it, it becomes a legal matter between the buyer and sellers, and we, as agents, have no control over that process.

What if a buyer wants to cancel but doesn’t have the contractual right to do so? In that case, the buyer is technically in a position of power, but the seller might refuse to sign the cancellation for a contractual reason. Your home will be out of the market until both parties sign a cancellation agreement.

At that point, the earnest money becomes completely negotiable. We can work out an agreement to determine how the earnest money is handled. Depending on the negotiations, it might be retained wholly by the seller, retained wholly by the buyer, or split 50/50 or 70/30.

What happens if the seller doesn’t want to sign the cancellation and keeps the earnest money? If the seller is unwilling to sign a cancellation and forfeit the earnest money, it becomes a legal matter again. The seller has to sue the buyer before we can put the home on the market.

Earnest money is hard to keep if you’re a seller. That’s just the reality if you want to put your home on the market and keep it there to sell to someone else. Unfortunately, you might have to sue the buyer if they cancel.

Always consult your attorney and review the legal statutes in Minnesota for a better understanding of these matters.

Again, as agents, we can’t relist the home until both parties sign a cancellation agreement. Sometimes, we even need a court order to proceed. This process can feel frustrating, especially in areas like the Twin Cities and western Wisconsin, where earnest money practices seem tricky.

If you have any questions about earnest money or how it works in Minnesota, don’t hesitate to reach out. Give me a call or text at (928) 710-7007 or send an email to travis@legacyren.com. I’m here to guide you through this situation.