- Unrepresented buyer, Moe Lasses, finally takes the plunge and makes an offer on a lovely vacant lot. After the offer is accepted and becomes a binding agreement, Moe quickly learns that the zoning of the property will not allow him to subdivide the lot. Moe asks the listing agent to hold up on the depositing of his earnest money until he can renegotiate the contract to include a rezoning contingency, which should take no more than a couple of weeks. The agent sets the earnest money check aside and continues to negotiate the Amendment between Moe and the seller.
- Another buyer, Dewie Diligence, has entered binding agreement after binding agreement, always terminating each deal during the first days of the Due Diligence periods for seemingly silly reasons (had a bad dream about the exterior color of one house, suspects that the neighbors won’t like him, his cat didn’t like a third house, etc). His agent, Patty Patient, is hoping that Dewie eventually finds the “perfect” home and sticks with a contract. Dewie has asked Patty Patient to just keep his earnest money check on hand for future offers. In fact, Patty Patient is so accustomed to Dewie’s quick termination of deals that Patty does not submit Dewie’s earnest money check with the contract, telling her Office Manager she is “getting it soon”.
- Yet another buyer, Olga Optout, enters a binding agreement to purchase a property with no contingencies whatsoever. She has a change of heart in the middle of the night and goes to the broker’s office the next morning, causing a scene and demanding the return of her earnest money check because of “the 3-day rescission period for contracts”. She threatens to stop payment on the check and to sue the broker if it is not returned to her immediately. The frightened agent hands Olga her check back and Olga stomps out before the agent can get her signature on a Termination and Release Agreement.
In each of these cases, buyers have entered binding agreements, handed over earnest money checks and then had a change of heart. In each of these cases, the agents have been put in difficult situations because buyers have asked/demanded that the agent act counter to the terms of the written, fully-executed contracts by withholding the agreed-upon deposit of the earnest money for one reason or another and without the written agreement of the seller.
What should happen in each case?
- Moe Lasses’ check should be submitted with the binding agreement immediately and deposited immediately. If Moe decides to terminate the deal during Due Diligence and does so according to the contract terms, Moe’s money will be refunded as soon as it has cleared the bank.
- Dewie Diligence’s earnest money, likewise, should have been turned in immediately with the binding agreement and deposited in accordance with the agreement. Dewie would need to provide a separate earnest money check for each new contract in the event her previous earnest money hasn’t had sufficient time to clear the bank and be refunded per the terms of Termination and Release Agreements.
- Olga Optout should be escorted to a private conference room and informed of her options to legally and correctly terminate her binding agreement, if any. Olga should be directed to speak with her attorney to learn exactly what her options and obligations are under the terms of the contract. Remember, with no contingencies whatsoever, would Olga be in default for pulling out of the deal, even within a day or two. Consumers sometimes believe they have a “3-day think it over period” after signing contracts; this is true for gym memberships and time-shares, but not for real estate. Could Olga be on the hook for paying the brokers’ full commissions?
In each case, the earnest money should be deposited as agreed upon between the buyer and seller. The contract clearly lays out the process for ending the agreement and that process should be followed. Shortcuts cause problems! Consider the ramifications:
- Moe Lasses and the seller are unable to come to a mutual agreement on a rezoning contingency within the contracts Due Diligence period and Moe walks away from the deal. The seller, per the contract, expects that Moe’s earnest money is safely in the broker’s Trust Account and demands that it be released to the seller.
- Dewie Diligence enters into many binding agreements, all using a copy of the same earnest money check and all properly disclosing that she has the right to enter into other contracts. Since Patty Patient has become so accustomed to dodging her Office Manager’s requests for the earnest money check, she completely forgets to turn it in. Weeks later, when Patty turns in the check, it bounces and Dewie tells her that she’s changed her mind about the property anyway and won’t be at closing. The seller demands the earnest money, which the contract indicated was deposited much earlier.
- Olga Optout cuts off all contact with any agent and leaves town without signing a T&R. The seller demands the earnest money once the closing date has passed.
Each seller has a very strong claim to the earnest money which each respective contract states has been received and deposited. Any questions?