Idaho RE-20 Contract Termination and Release of Earnest Money Explained

When a real estate transaction ends before closing, buyers and sellers often need to address two separate issues:

Whether the Purchase and Sale Agreement should be terminated.
What should happen to the Earnest Money.

The Idaho REALTORS® RE-20 Contract Termination and/or Release of Earnest Money form is designed to address one or both of these issues. While the form appears straightforward, it contains important legal distinctions that buyers, sellers, and real estate agents should understand before signing.

One of the most important concepts within the RE-20 is that contract termination and earnest money release are separate legal actions. Understanding that distinction can help avoid misunderstandings and disputes after a transaction falls apart.

What Is the RE-20 Form?

The RE-20 is a mutual agreement form that can be used to:

Terminate a Purchase and Sale Agreement.
Release Earnest Money.
Accomplish both actions at the same time.

The form is commonly used when a transaction does not proceed to closing due to inspections, financing issues, title concerns, mutual agreement, or other circumstances that prevent the parties from completing the sale.

Property and Contract Information

The top portion of the form identifies the transaction being referenced and includes:

Today's date.
Date of the Purchase and Sale Agreement.
Transaction identification number.
Property address or description.
Buyer names.
Seller names.

This information ensures everyone is referencing the correct transaction and property.

Contract Termination Section

The upper portion of the RE-20 allows the buyer and seller to mutually agree that the Purchase and Sale Agreement will not be completed.

By signing this section, the parties release each other from the obligation to buy, sell, or exchange the property under the terms of the original agreement.

What This Accomplishes

Ends the transaction.
Releases the buyer from the obligation to purchase.
Releases the seller from the obligation to sell.
Allows both parties to move on from the agreement.

What This Does Not Accomplish

The form specifically states that signing the Contract Termination section does not:

Release Earnest Money.
Determine who receives Earnest Money.
Act as an election of remedies.
Automatically waive claims between the parties.

This means a contract can be terminated while the earnest money remains in escrow awaiting additional instructions or dispute resolution.

Understanding the Conditional Signature Checkbox

One of the most overlooked provisions on the RE-20 is the checkbox located immediately above the buyer signature lines in the Contract Termination section.

The checkbox states:

"BUYER'S SIGNATURE(S) SUBJECT TO SELLER CONSENTING TO, AND SIGNING, THE FOLLOWING EARNEST MONEY SECTION."

This language allows the buyer to make their agreement to terminate the contract conditional upon the seller agreeing to the earnest money distribution outlined in the lower portion of the form.

What Does This Mean?

Normally, the upper portion of the RE-20 only terminates the contract and the lower portion only releases earnest money.

When this checkbox is selected, the buyer is effectively saying:

"I will agree to terminate the contract only if the seller also agrees to the earnest money instructions shown below."

In other words, the buyer is tying the contract termination and the earnest money distribution together as one proposal.

Example: Buyer Requests Earnest Money Refund

Assume the buyer deposited $5,000 in earnest money and inspection negotiations fail.

The buyer believes they are entitled to a refund and completes the RE-20 with:

Contract Termination section completed.
Earnest Money section directing $5,000 to the buyer.
The checkbox marked.

In this situation, the buyer is not agreeing to terminate the contract unless the seller also agrees to release the earnest money as specified.

Example: Split Earnest Money Settlement

Suppose the buyer and seller negotiate a settlement where:

$3,000 goes to the buyer.
$2,000 goes to the seller.

By checking the box, the buyer is making their agreement to terminate contingent upon the seller accepting that same earnest money distribution.

Why This Checkbox Matters

Without this checkbox, a buyer could potentially terminate the contract while leaving the earnest money dispute unresolved.

The checkbox provides a mechanism for connecting the two sections and making the termination dependent upon agreement regarding the earnest money.

Why Sellers Should Pay Attention

When reviewing an RE-20, sellers should always determine whether this checkbox has been marked.

If checked, the buyer is presenting a package proposal that includes:

Contract termination.
Earnest money distribution.
Acceptance of both terms together.

This is not simply a request to terminate the contract. It is a request to terminate the contract under specific earnest money terms.

Release of Earnest Money Section

The lower portion of the RE-20 provides instructions to the earnest money holder regarding how funds should be distributed.

Earnest Money Holder

This identifies who currently possesses the earnest money. Common examples include:

Title companies.
Escrow companies.
Brokerage trust accounts.

Amount of Earnest Money

This section identifies the total amount being held for the transaction.

Distribution Instructions

The parties can direct the holder to distribute funds in any mutually agreed manner.

Examples include:

100% to the buyer.
100% to the seller.
A negotiated split between the parties.
Any other agreed allocation.

What This Section Accomplishes

Authorizes release of the earnest money.
Provides instructions to the holder.
Allows funds to be distributed without further authorization.

What This Section Does Not Accomplish

The form specifically states that signing the Earnest Money Release section does not terminate the Purchase and Sale Agreement.

The contract remains in effect unless it is separately terminated.

Why the Distinction Matters

Many buyers and sellers mistakenly assume that terminating a contract automatically determines what happens to the earnest money.

Others assume that releasing earnest money automatically terminates the contract.

The RE-20 intentionally separates these actions because they are different legal decisions.

A transaction may be terminated while earnest money remains disputed, and earnest money may be released while other contractual issues remain unresolved.

Common Situations Where the RE-20 Is Used

Inspection Negotiations Fail

The parties cannot reach agreement after inspections and decide to terminate the transaction.

Financing Problems

The buyer cannot obtain financing and exercises applicable contingency rights.

Mutual Cancellation

Both parties simply decide not to proceed with the transaction.

Title or Property Condition Issues

Title concerns or property issues cannot be resolved within the contract deadlines.

Earnest Money Disputes

The transaction ends, but the parties disagree regarding who should receive the earnest money.

Common RE-20 Mistakes

Assuming contract termination automatically releases earnest money.
Assuming earnest money release automatically terminates the contract.
Overlooking the conditional signature checkbox.
Failing to clearly identify the earnest money holder.
Not confirming the exact dollar amounts to be distributed.
Signing before fully understanding the legal consequences.

What Buyers Should Consider Before Signing

Review contingency deadlines.
Understand default provisions.
Confirm earnest money distribution.
Determine whether claims remain unresolved.
Understand the effect of the conditional signature checkbox.
Consult an attorney when legal questions exist.

What Sellers Should Consider Before Signing

Review the Purchase and Sale Agreement.
Understand any potential default claims.
Confirm earnest money instructions.
Review whether the checkbox has been marked.
Determine whether all disputes are being resolved.
Consult an attorney when appropriate.

How Real Estate Two70 Can Help

When a transaction changes course, buyers and sellers benefit from understanding both the contractual and financial implications of terminating an agreement.

Real Estate Two70 agents help clients understand transaction documents, monitor deadlines, coordinate communication between parties, and navigate the transaction process from contract to closing. While agents can explain the purpose and function of transaction forms, they cannot provide legal advice. Buyers and sellers with legal questions should consult a qualified Idaho attorney.

Contact a Real Estate Two70 Agent

Frequently Asked Questions

Does signing the RE-20 automatically return earnest money to the buyer?

No. The Contract Termination section does not determine how earnest money will be distributed.

Can a contract be terminated while earnest money remains in escrow?

Yes. The parties may terminate the contract while continuing to negotiate or resolve the earnest money disposition.

What happens if the conditional signature checkbox is checked?

The buyer is making their agreement to terminate conditional upon the seller also agreeing to the earnest money distribution shown in the lower section of the form.

Can earnest money be split between the buyer and seller?

Yes. The RE-20 allows the parties to direct distribution in any manner they mutually agree upon.

Does releasing earnest money terminate the Purchase and Sale Agreement?

No. The earnest money release section does not terminate the contract.

Should I consult an attorney before signing an RE-20?

If there is a dispute, uncertainty regarding rights, or questions about legal consequences, consulting a qualified attorney is often advisable.