The Counteroffer, the Late Earnest Money, and the Missed Inspection
Priya offers $318,000 for a home listed at $325,000 with $6,000 earnest money "due within 3 business days after acceptance," a 7-day inspection period, a 21-day financing contingency, and a 40-day closing. Seller counters at $323,000, shortens inspection to 4 days, and makes earnest money due "upon signing." Priya signs and emails the counter at 9 p.m. Friday. She does not deliver the $6,000 until the following Monday week. On day 5 after signing, an inspector finds foundation cracks, and Priya emails a termination citing the inspection. Seller refuses to return the earnest money, saying no contract formed because the money was late, and that the inspection deadline had passed anyway. All signatures were electronic.
1. Was a contract formed, and when?
Read the worked answer
Yes, a contract was formed when Priya communicated her acceptance of the counteroffer - Friday at 9 p.m. A counteroffer is a new offer; signing it and emailing it back is acceptance. Oklahoma's electronic-transactions law generally validates electronic signatures and records, so the email and e-signatures do not defeat formation.
Late earnest money is usually a breach of a contract term, not proof that no contract exists, unless the contract expressly makes payment a condition precedent. The counter said earnest money was due "upon signing," so Priya was late. But formation occurred Friday, and the seller's remedy is to enforce the earnest-money term or claim breach - not to pretend the contract never existed.
Judgment point: the buyer's agent should have delivered the earnest money immediately or obtained a written extension before the deadline.
2. Is Priya's inspection termination effective, and is she entitled to the earnest money?
Read the worked answer
The counteroffer shortened the inspection period to 4 days. Priya terminated on day 5, so her inspection termination is likely too late and ineffective on its own.
Her earnest money position is weak but not hopeless:
- She can still use the financing contingency if it is timely and properly exercised.
- The seller may have waived the "upon signing" earnest-money deadline by accepting or holding the late $6,000 without objection.
- If the seller treated the late payment as a material breach, the seller must follow the contract's notice and cure provisions rather than simply keep the deposit.
The earnest money should not be automatically forfeited. The parties should apply the contract's dispute-resolution procedure. If they cannot agree, the broker should not pick a winner.
3. What must the listing broker do with the $6,000 while the dispute continues?
Read the worked answer
The listing broker must hold the earnest money in a separate trust account and must not disburse it to either party without:
- a written release signed by both parties, or
- a court order or authorized arbitration award.
The broker should notify both parties in writing that the funds are being held pending resolution, keep a ledger showing receipt and location of the funds, and avoid using the money for commissions or closing costs. If the dispute continues, the broker should consider interpleader so a court decides who receives the deposit.
The broker's duty is custody and neutrality - not to decide whether Priya's inspection notice was one day late.