It is usually necessary to put up an earnest money deposit when buying real estate. An independent escrow agent normally holds the deposit, although sometimes the broker or an attorney holds it for one of the parties.
The earnest money deposit serves two purposes: (1) it shows that the buyer is serious, and (2) it can be forfeited to the seller if the buyer fails to perform.
In a hot market, the seller will sometimes ask to have the earnest money deposit released to him after the contingencies have been satisfied.
This sounds reasonable. What could go wrong? The answer is “plenty.”
In most commercial real estate transactions, the seller has to do more than put a deed in escrow. Surprises can and do occur. Perhaps a tax lien or mechanics’ lien attaches to the property just prior to closing. Perhaps an amendment to the title commitment discloses an unknown title defect. If his earnest money has already been released, the buyer is left in a difficult situation.
Conclusion
It is a bad idea to allow earnest money to be released prior to the closing. Avoid it if you can. If the seller will not budge, negotiate the amount down to the smallest amount possible.