What happens when a contract is noted as an earnest money contract?

When a contract is identified as an earnest money contract, it typically signifies that the buyer has provided a deposit to show their good faith intention to proceed with the transaction. While there are obligations involved, the key aspect here is that an earnest money contract generally does not confer rights to sue for specific performance exclusively to either party.

Specific performance is a legal remedy that compels a party to fulfill their contractual obligations when they fail to do so. In the context of an earnest money contract, while the buyer may hope to enforce the contract and seek specific performance if the seller defaults, the seller also retains rights. If the buyer defaults, the seller might seek specific performance or damages as well. Thus, noting that neither party can sue for specific performance is accurate in highlighting that both parties have reciprocal rights and obligations, but it does not mean they are entirely excluded from seeking remedies.

The other options do not correctly describe the nature of an earnest money contract. It does not place an absolute obligation to close on both parties, as various contingencies might affect the final closing. Furthermore, either party retains legal rights under the contract, contradicting the assertion that only the buyer or only the seller could initiate legal action.