What Is a Mutual Release in Real Estate?
A mutual release is the document buyers and sellers use to formally cancel a real estate contract and release each other from further obligations — including what happens to the earnest money.
💡 Quick Answer
A mutual release is a written agreement signed by both the buyer and seller confirming that the contract is canceled and that neither party can make future claims against the other related to the transaction.
📌 Why a Mutual Release Matters
Even when a buyer cancels correctly under a contingency, the deal is not considered fully closed until both parties sign a mutual release.
- It officially terminates the contract
- It instructs the escrow holder how to release earnest money
- It prevents future legal claims tied to the deal
Without a signed mutual release, earnest money can remain frozen and disputes can escalate unnecessarily.
📄 When Is a Mutual Release Required?
A mutual release is typically required when:
- A buyer cancels under an inspection, financing, or appraisal contingency
- Financing is denied after the buyer is under contract
- The parties mutually agree to walk away from the deal
- Earnest money needs to be formally released from escrow
🚫 What If One Party Refuses to Sign?
A mutual release must be signed by both the buyer and the seller. If one party refuses:
- Earnest money is often held in escrow until resolved
- The escrow holder cannot release funds unilaterally
- The dispute may require mediation, arbitration, or legal action
This situation commonly occurs when a seller disagrees with the buyer’s reason for canceling — even if the buyer acted within contract timelines.
💰 How Earnest Money Is Handled
A mutual release typically includes instructions for how earnest money should be distributed:
- Returned to the buyer
- Released to the seller
- Split between both parties
Until the release is signed — or a court order is issued — escrow holders usually cannot release the funds.
📌 Related Situations
Need to Navigate a Contract Cancellation?
Brokerless helps buyers and sellers understand timelines, contingencies, and dispute risks — without traditional agent pressure.