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My sellers have gotten the earnest money three times. All of them, it was rightfully theirs and only two put up a stink about it. The longest it took to get it signed over to them was a week.
I don't think EM is a joke, but you have to protect yourself. $500 isn't protecting yourself.
That buyer had a good agent who was following her duty under the law to work in the best interest of her client and she was well versed in understanding the law. Rather than getting a lawyer involved, I'd suggest you hire an agent with that level of expertise.
Having been an observer of real estate for two decades, I learned that attorneys kill deals. My parents wised up to it and refused to be involved in deals involving attorneys. They simply refused to be a part of it. They can not afford to waste time getting two people to not agree while neither agent gets paid and attorney takes an hourly rate to prevent compromise.
When I grew up and started investing in real estate, I knew the value of a good realtor. (No, I don't work as a realtor. I don't care for doing customer service. I'm an MBA in Finance.) I happily paid a good realtor to work for me. He did an excellent job, protected me through the transaction, ensured every paper was filed on time, and kept everyone (even my mortgage company) in check so things could proceed smoothly.
As a buyer, if I heard you were going to involve an attorney, I would pull any offer I had made. It is an immediate sign of mistrust. Making an offer that gets accepted is a time investment from the buyer and their agent. Neither the buyer nor the agent wants to waste their time. If they discover something that was misrepresented or hidden, they need to protect their ability to walk away.
Imagine if you wanted to buy a car. You found a pickup that looked like it would suit your needs. You asked to take it to the mechanic for a final inspection before closing, the man wanted you to give him earnest money. Would you trust that man? I've had people lie to me and try to sell lemons before. Not only do they not get to keep the money, I demand they part of the mechanics expenses. The buyer backing out is usually on the hook for inspection costs, mortgage application costs, etc. The last thing they want is for you to be able to profit off them getting screwed.
I'm sorry the deal didn't go through. That sucks for you. It also sucks for them. If they found a much better deal and decided they didn't want to close with you, that just means someone else was offering a better deal. Or perhaps they lost a job that they needed to have to qualify. I don't know what the situation was, but demanding that you be allowed to hold the earnest money or involve an attorney will scare off every educated buyer, or they will only make offers that are 20 to 30 grand under market value to compensate for the difficulty of dealing with your policies.
If you held the earnest money, and they backed out under a clause that was clearly spelled out under the law.... you could still hold the money and force them to sue. That puts the burden on them, but most (or all) good real estate agents will be wise to the trick.
Wow. Talk about practices being different by location!
Here in Somerset County NJ, just about EVERY transaction involves attorneys. In most cases, the buyer & seller each retain an attorney to review, and sometimes change, the contract. In fact, it is required by law that the real estate agent have his clients or customers sign, a document (the Opinion 26 disclosure) to be attached to the contract of sale, acknowledging that the agent is not an attorney, & provides no legal service or opinion, and recommends that the principal retain an attorney if they want any legal advice or service.
Say the buyer backs out at the last minute because they simply get cold feet or decide they want another house. So none of the contingencies apply in the contract that would grant them a refund of their money.
They still want the money back anyway and refuse to sign a release letting the seller have it. Assume these are jerks and they just don't want to give you the money. So they flat refuse to sign.
What recourse does the seller have? Suing over as little as $1500? Is that really what it can come down to if a buyer decides to be an ass about this?
Where are you that such a small amount of earnest money is the standard, and no other money is collected until the closing?
Here in my market, we usually see a "small" initial deposit as earnest money (typically $1,000 - $5,000) and then a much more significant second deposit (commonly 10% of the purchase price, unless 90% or more is being financed) after attorney review is complete.
Why do you think the agents are going to get any of it? Most listing contracts require that a ready willing & able buyer be produced for the commission to be due. Clearly this buyer is not.
You're right I should've asked for more. Her agent kept telling me what I've been verifying as true. It's hard to get the earnest money so up to a point anyway who cares. That said I do think 500 wasn't enough. 1000 would've been better. As it ended up - the buyer at the time needed me to cover so much in closing, because she was cash poor, that the deal didn't go through. It's possible asking for the extra earnest would've sunk the deal right there. Is that bad? In that case it didn't really matter. She didn't have the money to buy the house.
Thank you for the info and I do understand you can always get the attorney in there to sue for the earnest. It just seems like a) earnest money goes back to the buyer almost all the time anyway due to the contingencies that are in there and b) suing is a hassle. So that's why I kind of said the whole earnest money thing is somewhat of a joke. From the seller's perspective it seems like the buyer can really jack you around if they want.
Why were you listening to HER agent, instead of your own?
Where are you that such a small amount of earnest money is the standard, and no other money is collected until the closing?
Montana.
$500 is low even for here. Her agent was basically telling me that since I can't ever get the earnest money back it really doesn't matter anyway. Her near exact words were the buyer would have to come into closing and tell me she didn't like me because I was wearing green socks and so didn't want to buy the house from me now. That would be about the only way she could ever forfeit the earnest.
Quote:
Originally Posted by Bill Keegan
Why were you listening to HER agent, instead of your own?
In the future I will be asking for more and I will be having the contract reviewed by a real estate attorney before I sign off on it. If they try to pressure me into signing right away, which they will, I will refuse.
You can't know 100% what hidden agendas the realtors bring to the table....
Strange thing Larkspur123, you never answered my question about this in post #22. I am still waiting for your answer. Big words if you can't back 'em up.
About the only agenda I have come across in 35 years of buying and selling are a few listing agents/brokers that work for both sides of the deal...
In the last few weeks I looked at a home... liked the home very much... did not like the neighborhood at all.
The listing agent called several times saying he would write any offer I wanted to make. The market here is extremely strong and even so... a property that is way above the neighborhood in every way is still subject to the location.
His last call was an offer to cut his commission and rebate it to me as the buyer and suggested a price that he "Knew" would work.
Turns out an outside agent had the buyer and the offer was 100k under list... by cutting his commission, the listing Broker was trying to maximize his commission by not having to share.
The deal ended up falling through anyway... owner paid 1.3m for the home and spent 200k on upgrades with permits...
Home listed for 1.125m and accepted offer was 1.025m and the appraisals came in at 925k... adjacent homes sell for 400 to 600k...
I was very fortunate to have early on met a great Realtor... she taught me a lot and was instrumental in a number of purchases... My first time out at age 21 I wanted to offer 25% earnest money... she explained why it was a mistake and said 1% was plenty and it was.
Over the years she would call to say she had just seen a property that I really needed to see and often I would end up buying... mostly distressed, back on the market, contractor specials... etc.
Last edited by Ultrarunner; 05-19-2013 at 12:14 AM..
The buyer or seller can file suit in civil court even if the broker is holding it in an escrow account. As a buyer I would much rather the title company or attorney hold the funds than the listing broker. As a seller I wouldn't be as adamant but would still probably rather the title company hold it.
They certainly can file suit but in most cases the amount disputed isn't enough that the average person would choose the court route over the free process offered by the state. In the few instances where I was involved in a dispute, once the escrow disbursement order was received and the broker distributed the funds the disputing party dropped it and didn't pursue court action. As a buyer I would always prefer to have access to that free resolution process with a good track record over being forced to use the court as a settlement vehicle. That means, for me, as a buyer, I always choose to have my Florida escrow money in a Florida real estate broker's escrow account.
If you are going with a zero down loan then you are an iffy buyer anyway.
Or they are one of over 2 million veterans taking out VA loans.
In LA the buyer's agent puts the escrow into an interest bearing. Also, in LA contracts say that sellers can sue for 15 or 20 percent (cant remember which) of the agreed upon sale price if the buyers flake out and walk. in SC it's the listing agent that deposits the escrow. Either way, it's the real estate companies that are making money off our escrow money in interest bearing accts. I think it's a little shady.
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