Buyer Requesting Earnest Money Back, What would you do?
This will be a bit long but I want to lay it out as clearly as possible. TLDR below.
TLDR: Buyer did not secure financing in time, lost interest rate, now its higher. They no longer want to buy. Said it isn't their fault and they should get full earnest back. I countered with 50/50 and they are maintaining their argument.
Edit to add: They had a 10 day obligation to obtain reasonable financing (per the Purchase Agreement) and did not meet that. Would that then make the entire purchase agreement null and void if I so chose? I probably should have added that detail but wasn't sure if it was relevant when first posting.
My wife and I put our house on the market July of this year. Waited for ~6 weeks for first buyer to close, only to find out they lied on some financial docs and bank dropped them day before close. We got their $500 earnest deposit (LCOL area). Fine, whatever, it happens.
Back on market 2 days later, took almost 3 weeks to get another full price offer (Mid September), since people were already settled in (kids in school, interest rates going up, etc). Had a couple of low ball offers in between. We missed the hot market this past summer due to the first buyer falling through. We sign the purchase agreement. They wanted 8k towards closing, and contingency of their house selling before close. Cool, not a lot of choice on our end, we accept. They also wanted 8k toward closing and waived their inspection clause after seeing the inspection the first seller had done.
First red flag was (we found after the fact) was that they had bought their home only 1 year prior. They had listed it for ~10% more than they paid, I'm thinking likely to try and recoup some of their costs like realtor fees and such, but you could buy a new build within a mile of their home for the same price and same size, so we knew it'd be an issue. A week later they drop the price. Still no hits. Finally, after a month of waiting, they remove their house from market without telling our realtor. I finally asked for an update yesterday after seeing their house had been removed. My realtor reached out to theirs and finally found out they were sending a release. They lost their original interest rate and no longer wanted to buy. They were requesting the earnest money back in full. I told my realtor I'd be willing to split it 50/50, because earnest money is there to protect the seller, right? I guess not in their minds. It's a small amount ($1k). Not really enough to worry about. My realtor finally got back to me today and they said they do not agree and want the full 1k back. I scoffed, and laughed a bit. She said she pushed and let them know this is being more than fair from our end. We had even offered to give an additional ~5k to help them with a rate buydown prior to them asking for release. No dice. I have asked my realtor to go back to them and request a 50/50 split one last time, and if they decline, I won't sign the earnest release.
The purchase agreement had some clauses which have already released us from that and we are back to market for the 3rd time. Am I in the wrong for this? Am I being too petty? Should I let them have it? Let it sit forever in whatever escrow account it's in? What happens in this situation?