Question 6

Earnest money is returned to the buyer when an offer is rescinded before acceptance.

When a buyer rescinds their offer prior to acceptance, the earnest money is typically returned to the buyer as there has been no binding agreement formed.

A) broker keeps in lieu of commission.

This option is incorrect because if the offer is rescinded before acceptance, there is no commission due to the broker as no transaction has taken place. The earnest money should be refunded to the buyer in this scenario.

B) split between seller and broker.

This option is incorrect as well. In the event of a rescinded offer before acceptance, there is no basis for splitting the earnest money between the seller and the broker, since the deal has not been finalized and no services have been rendered.

C) returned to buyer.

This option is correct. When a buyer rescinds their offer before it has been accepted by the seller, the earnest money is returned to the buyer because the offer was never formally accepted, meaning the transaction did not proceed.

D) forfeited after 6 days.

This option is incorrect because the forfeiture of earnest money typically occurs after a contract is signed and specific contingencies are not met. In this case, since the offer was rescinded before acceptance, the earnest money must be returned to the buyer.

Conclusion

The correct answer is that the earnest money is returned to the buyer when they rescind an offer before it is accepted. This outcome aligns with the principle that no binding agreement exists until an offer is accepted, making it unnecessary to penalize the buyer with forfeiture or commission fees. All other options fail to recognize the lack of a binding contract in this scenario.