Condo developers suing unclosed buyers.

Developers in Nashville, TN are suing 3 buyers who did not close on condos they contracted on spec a few years ago. I noticed a post by a buyers' agent asking why we even have earnest money and that the forfeiture of earnest money should satisfy a breach of contract by the buyer. This was my response:

I'm not sure why you need earnest money explained to you since you are a licensed agent but I will comment. I see that you represent only buyers so I understand that you see it from the buyers' perspective. I work with both buyers and sellers so I'm not taking sides; I'm commenting on your predilection.

We know that earnest money is held in escrow to protect the seller in case the buyer breaches the contract. Since nothing is black and white and many scenarios can occur that can result in a breach, either party has the right to sue for actual damages (depending on the contract's verbiage) caused by the breach. The amount of the damages can differ, depending on the amount of loss. Nobody knows what that will be until the breach occurs so it may end up to be more than the amount of the earnest $. Since the same laws apply for new condos, resales, etc., here is just one example of why we have both earnest money and contracts:

Say that a seller had received a $10,000 higher offer from buyer B right after signing a contract with buyer A yet had to honor the existing CONTRACT. What if the transaction wasn't closing for 3 months so the property is off the market for 3 months but buyer A backed out a week before closing. The seller is entitled to keep the earnest money, depending on the verbiage in the contract, but now the house has been off the market for three months plus however long it takes to resell. The seller now couldn't buy a home that s/he was trying to buy and lost a job because he/she couldn't move because the buyer didn't close. The buyer's decision has caused a domino effect. If the contract states it, in this case it is the seller who has the right to sue for specific performance. A Real Estate expert/guru like you should know this.

Even though the developers didn't lose a job or a home, the same laws apply to this seller. In the case of the condos, nobody could have predicted that the market would change for the worse. Perhaps a buyer decided this price was no longer in their best interests. That shouldn't matter. A contract is a legal and binding agreement and the seller may be able to keep the earnest money but the buyer still breached a contract. However, to win a case, the seller has to prove damages. The bottom line, though, would be what is decided by the courts.