One of the most potentially drama filled zones of real estate are earnest money deposits–also known as EMDs. The big issue regards whether you can get your earnest money back simply and quickly should you decide to void the contract. Is the broker allowed to give yo–the buyer–the money back even when it is obvious you are in the right. And if you’re the selling agent (buyer agent) then how to protect your buyers’ earnest money in future transactions.
For example, let’s say that the home you are buying is $750,000. You will be depositing quickly about $15,000 in most cases and it is part of your down payment. This causes you to be invested financially since that if you break the sales contract you stand to lose your earnest money deposit (EMD). It makes the contract stronger in essence and gives the seller confidence in working with you that you are serious about buying his home.
One of the primary fiduciary duties of the selling agent (buyer agent) is reducing his clients’ risks throughout the contract. An example of this is trying to ratify the sales contract with as small as possible of an earnest money deposit. That way if the buyer voids the contract within his rightful contingency window for a valid reason the money on the table is as low as possible to try and get refunded back to the buyer. Can the buyer get his earnest money back right away and move on after voiding the contract or is it more complicated?
Well I wish it was that simple because as a broker, as the owner of JustNewListings.com Realty, it would make my life easier occasionally. What happens is if you want to void the contract, even if you are within your very plainly stated contractual language. If you are supposed to be getting your EMD back, the managing broker of the office where your money is being held, he cannot at least in most states, everything is completely regional. You have to check with your own broker with whom you’re working. But the broker cannot just release the earnest money deposit back to the buyer who is supposed to be getting it in so many scenarios.
His hands, he is essentially handcuffed. He cannot release the money back even though everybody knows it’s supposed to go back to that buyer unless he gets it in writing from all parties. And essentially every one fills out their form and says, “How much of the pie, the earnest money deposit is supposed to go to which party, the buyer or the owner of the property?” Now in most cases, 9 out of 10, everyone just signs real fast and will put the full amount of the Earnest Money Deposit. It goes back to the buyer and it’s all done in a day. Once in a while though, if the seller is upset or if there are any questions whatsoever where they feel like they’ve lost time on the market a few days, therefore they should at least get a thousand dollars of that earnest money deposit. They will not sign off on the release, the release for the earnest money funds. And instead, will try and split it with the buyer or negotiate it. And therefore, the broker cannot give the money back to the buyer. Legally, his hands are tied.
If the seller will not sign the release sending the money back to the buyer, then the buyer’s broker must send notice in a letter to the seller stating he is going to release the funds back to the buyer in 30 days unless he (buyer’s broker) receives a written protest disputing that release from the broker to the buyer. If the seller does make this dispute within that 30 day window the buyer’s broker will not be able to release funds. The courts will take it from there likely in most regions.
So the earnest money would be held against the buyer’s will in this situation when the seller will either not sign the release or even goes so far as to dispute the release in writing within the 30 day window. The frustration would be high as this could prevent the buyer from making an offer another home until they recovered their funds from the deposit.
How do we get around it? It’s not that hard. Probably the best trick of all that I found for just taking the drama out of real estate transactions, is an addendum up front when you submit your contract. And it’s one sentence in most cases: “All parties agree that the earnest money deposit will be deposited after all parties have signed off on the home inspection addendum.” So in other words, you’re saying that no money is going to be deposited until the buyer and seller have already worked through their home inspection issues and signed off on the home inspection addendum together which is at least usually that process is going to be a week. So it’s keeping the earnest money funds in the buyer’s hands until for sure everybody is moving forward with the contract. Because sometimes in the negotiating of home inspection items, there can be drama. There can be clashes. Bad blood can be created which lends itself to a buyer’s earnest money deposit funds being stuck in escrow and no way to get them out without going through formal proceedings.
One can get the real time market data on Great Falls real estate along with advice on protecting your earnest money deposits etc. by reading a consumer advocate blog on Turnberry Tower Arlington homes for sale. Find out the sold prices for homes, etc.
