ArcaMax

Dear Monty: In Virginia, can a real estate purchase contract be terminated simply by walking away and forfeiting the earnest money?

Monty's Answer: This is a common question; the short answer is not always. In Virginia, as in most states, a real estate purchase contract is a legally binding agreement between buyer and seller. A few state contracts contain an attorney review clause after a contract is signed, where a buyer may walk without penalty if the attorney spots a problem. While forfeiting the earnest money may result from walking away without cause, it doesn't automatically release a buyer from all contractual obligations or further liability.

Here is what you should know:

No. 1: The Role of the Earnest Money

Earnest money is a deposit the buyer provides as a sign of good faith. It gives the seller some assurance that the buyer is serious. If the transaction closes, the money is applied to the purchase. If the transaction fails, the contract determines who gets to keep it. However, forfeiting the deposit does not always mean the buyer is off the hook.

No. 2: Contract Contingencies Matter

Most standard Virginia real estate contracts include contingencies -- clauses that allow the buyer to cancel under certain conditions. Not all forms are identical because the State of Virginia does not supply state-approved forms. Different realtor sources or attorney forms can vary. If a buyer backs out within the time allowed by a contingency and for a valid reason outlined in the contract, they can typically walk away and retain their earnest money. But walking away without invoking a contingency -- or after all deadlines have passed -- can put the buyer in breach of contract.

Common contingencies include:

-- Home inspection

-- Financing

-- Appraisal

-- Title Review

-- Home Sale Contingency (buyer must sell their current home first)

No. 3: Walking Away Without Cause

If a buyer walks away without justification defined in the contract, the seller may claim the earnest money as "liquidated damages." This language is a pre-agreed remedy for breach and is often the sole remedy stated in the contract. But not always.

Some contracts allow sellers to pursue additional remedies, including specific performance (forcing the buyer to buy the home) or suing for damages. While rare, especially with residential properties, this is legally possible. The risk increases with custom or high-value homes, where the seller may face greater losses.

No. 4: Seller's Agreement Is Still Required

Even if the buyer says "keep the earnest money," it doesn't mean the seller automatically agrees. In Virginia, both parties typically must sign a release before the escrow agent can disburse funds. If there's disagreement, the money can remain in limbo -- or be resolved through mediation, arbitration or litigation.

No. 5: Advice Before Walking Away

Buyers in Virginia should carefully review their contracts before making any move. The best course is to:

-- Consult with a real estate attorney licensed in Virginia.

-- Check the dates and terms of any contingencies.

-- Communicate with the agent and seller in writing.

Final Thought

Walking away is not a guaranteed clean break. It's more like pushing a domino -- what happens next depends on the structure of your deal and how the seller responds. The earnest money is just one piece of the bigger picture. For readers in most other states, this same information also applies in your state.?

Richard Montgomery is a syndicated columnist, published author, retired real estate executive, serial entrepreneur and the founder of DearMonty.com and PropBox, Inc. He provides consumers with options to real estate issues. Follow him on Twitter (X) @montgomRM or DearMonty.com.

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