Iowa Real Estate Practice Exam

If a "subject to sale" offer has been accepted but the property does not sell within the agreed time frame, what typically happens to the earnest money?

1. It is forfeited to the seller

2. It is returned to the buyer after they sign a release form

3. It is transferred to the listing agent

4. It remains in escrow indefinitely

The correct answer is: It is returned to the buyer after they sign a release form

When a "subject to sale" offer is accepted, it typically means that the buyer's ability to purchase the property is contingent upon selling their own property. If the buyer is unable to sell their property within the agreed time frame specified in the contract, the earnest money is usually returned to the buyer. This is because the contingency was not satisfied, and the agreement did not fully execute. To process the return of earnest money, the buyer often needs to sign a release form, indicating that they are relinquishing any claims to the contract due to the failure to meet the contingency. This ensures that all parties acknowledge the status of the transaction and agree to the return of the earnest money, thereby protecting the interests of both the buyer and seller. Other options do not align with standard practices in real estate transactions. Forfeiting the earnest money to the seller or transferring it to the listing agent would only occur under circumstances where the buyer violates the agreement without a valid reason, which is not the case here since the buyer is unable to meet the sale condition. Keeping the earnest money in escrow indefinitely does not represent a typical outcome, as it would not resolve the transaction's status or allow for closure.