Earnest Money – Where does it go and when?

Some of the most Frequently Asked Questions in a Real Estate Transaction involve the Earnest Money Deposit. The Earnest Money usually follows with the transaction from day one all the way through to the last day, as in “follow the money”.

The buyer usually writes a check for the Earnest Money deposit at the same time that they sign the offer and they hand it to their Buyer Agent. The check can be made payable directly to the Escrow Company they chose in the contract, or to the Buyer Agent’s Company if they have an in house Trust/Escrow Account. More and more these checks are made payable to the closing agent.

When the seller accepts the buyer’s offer, the check gets deposited. Let’s assume the check was made payable to escrow and went directly to the escrow company for deposit.

At close of escrow this money comes back to the buyer as a credit against his costs or downpayment. If it is a zero down loan and the seller is paying the closing costs in full, this $1,000.00 can be returned to the buyer at close of escrow.

If you know you really want the house when you make the offer, and you have no problems at all throughout the transaction, the Earnest Money just slides like butter from your hand and back into your hand. Whether it actually goes into your hand at the end or is paid against your costs varies from transaction to transaction. But it still simply comes back to you like a boomarang.

The only time you should be worried about handing over an Earnest Money check, is if you are not sure you want the house at the time you make the offer 🙂

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ARDELL is a Managing Broker with Better Properties METRO King County. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has 33+ years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. email: ardelld@gmail.com cell: 206-910-1000

124 thoughts on “Earnest Money – Where does it go and when?

  1. Buyers need to be very careful to make the earnest money deposit as provided in the contract. If they are late (of if their check bounces), even by a day, Washington case law is clear that such failure is a material breach of the contract. This means that notwithstanding any contingencies in the deal (financing, inspection, etc.), the seller may declare buyer in default and seek the remedies that are provided in the contract.


  2. Actually Russ, the Department of Licensing has advised us that we need to take the check from the buyer and we need to be the one to comply with the contract specifics. We need to get a receipt when we bring it to escrow, or when they pick it up, and not rely on the deposit receipt.

    We had one sale where the escrow was held by an attorney in Lynnwood. At the last minute he said he “didn’t have time to deposit the check before escrow closed”. It was a condo conversion and the check was given with the contract at the sales office 30 days prior to close of escrow.

    So we need a receipt when we hand it to escrow, we being the agent/broker and not the buyer. And we need to bring it directly to escrow and not hand it to anyone else, no matter what the new construction sales office wants us to do.

    So sayeth the Powers that BE!

  3. Ardell,

    The NWMLS Purchase and Sale Agreement states:

    “Earnest Money. Buyer agrees to deliver the Earnest Money within 2 days after mutual acceptance of this Agreement to Selling Licensee who will deposit any check to be held by Selling Broker, or deliver any Earnest Money to be held by Closing Agent, within 3 days of receipt or mutual acceptance, whichever occurs later.”

    My point was that a buyer who fails to deliver the EM to the Selling Licensee within the stated time frame has breached the contract and the Seller will have whatever remedies that were provided in the PSA including going after the buyer for the EM if the EM forfeiture provision was part of the contract.

    Not sure what DOL is telling you but there is no license law requirement for the Selling Broker to touch the EM unless, of course, the contract instructs them to do so (which is the case with the NWMLS form).

  4. We generally expand the timeframe in the contract to be safe. DOL seemed happier with that arrangement. I have found the DOL to be very helpful and easy to talk with. They are very supportive.

    I have not, knock on wood, in fifteen plus years had a sale, or even heard of one, that didn’t close because the Earnest Money was late. Though I have heard of some where the check bounced and the buyer had to get the money to escrow pronto. Sometimes they have to transfer money from their savings account, so the expanded timeframe for deposit is often needed and works well.

    DOL just checks to see that it was done within the time agreed to by the buyer and seller. So if that says 5 days, then five days is fine.

  5. Ardell

    I just want to make sure the readers don’t get the wrong message here. DOL monitors your performance as the authority that grants you a license to sell real estate. DOL has no authority over private contracts regarding whether one party has breached or not. I have had two disputes in the last three months that revolved around this very issue – Did the buyer get the EM to the selling agent in time. In both cases, we were able to show that the money was in fact received within the three day time frame. If the facts were different and we were unable to show the timely deposit, buyers would have been “up a creek” as they say. Both were cases that the seller realized they could get more money for their house than they had accepted from the buyer and were looking for a loophole. Moral of the story here is for buyers not to give sellers such an easy loophole.


  6. I think that’s a littly creepy. Whatever happened to “proceeding in good faith”. Looking for the buyer to be a day late to kick him out of escrow? Yuck! I’m glad they didn’t find an excuse. It shouldn’t be a bidding war all the way to closing.

  7. Pingback: Central VA real estate news, trends and opinions - Central Virginia’s first and premier real estate blog. Real estate buying and selling news, trends from the perspective of a Charlottesville area Realtor. » Earnest Money Deposit

  8. I’m a new agent and would like some feedback on an issue I am going through right now. I was in the process of purchasing a new home for my own personal use a few weeks back. The sellers agent happens to be a colleague, we share the same office, I am also the buyers agent. Anyway, at the time of writing up the offer, I checked the box in the P&S, that all trash, debris & garbage must be removed from the property at time of closing. On the day of closing there were still up to 50 automobile tires on the property. 3 days before, I had put a hold on escrow because there was still garbage and furniture, to much for my likes!. So, I called the L.A. and explained to him, my dilema. The agent went ballistic, he threatened me by saying, that if the hold wasn’t removed by 12.00 noon, the deal was off and that I could, after closing remove them myself. He also informed me, that the sellers were actually happy that it wasn’t coming to closing, because they had another offer for 35000 more than ours. So, I quickly drove to the property again, only to find that the tires and numerous paint cans were still there, nothing had been done. I then called escrow and asked them what I should do. I was told that the money had to wired by latest 2.30pm in order to close on that day. Well, by this time it’s already shortly before 2.00pm, so I decide to go to the property one more time. The debris was still there. I spoke with my broker, he advised me that if I didn’t go ahead with the sale and to not make such a big deal of something so trivial, I would loose the earnest money deposit. Did I forget to mention that my broker and the sellers agent are best buddies? Later that evening after speaking with my husband about the events of the day, we decided to rescind on our offer due to the agents unethical methods, his threats and his extremely rude behavior. I faxed through the recission to the LA, to my (our) broker and to escrow. So my problem is, am I going to loose my earnest deposit and how do I go about forcing arbitration to speed this whole thing up?
    I would be interested to hear, what you guys think. Did I breech the contract by not closing?

  9. Unless your contract says somewhere, “This contract is null and void if the tires and debris are not removed within 24 hours of closing.”

    You close. You hire someone to remove the debris and pay them (don’t remove it yourself…that may not be “compensable”). Then you take the bill to small claims court and see what happens.

    As an agent, you went against broker instruction as well. Not a good situation. If the seller actually got $35,000 more for the property, you might be able to get a lawyer to convince someone the seller was forcing you out of the contract to get that $35,000.

    How much is the Earnest Money deposit? Is it more than the legal fees it might take to save it?

  10. Our agent adviced for us to close early (2 weeks) and he double checked with our lender that they could do that in the time frame- The lender said they could- We have a nice sum in earnest money- but the lender has been elusive with my agent (it is a reputable bank) I went in today to sign some FHA paper work- and the lender was hinting at the fact that the loan might not be available until a day or two after the set closing date- I asked her if she had been relaying that to my agent and she said she had- When I got ahold of my agent this afternoon he told me otherwise- Last I heard the Title company and my agent have been trying to get ahold of her- She is not great at returning phone calls and her cell phone voice mail is filled….

    If the lender can’t follow through on time… is there a chance that we will lose our earnest money?

  11. People want you to close more than they want your Earnest Money. If you don’t close at all, they want your Earnest Money. That’s the practical side of it.

    I’d be going over her head right about now. Voice Mail filled is NOT a good sign.

    Can you lose it? Yes. If you go past closing it’s not likely that your Finance Contingency will be in play. If you aren’t going to get it at all, they should tell you now so you can exercise your rights. If it’s their problem, go over this woman’s head fast.

    Sorry your question got buried today. I find if you raise holy hell at least three days before, it closes on time.

  12. We were about to go to closing on the house of our liking two weeks prior to the closing of our current home when the buyers of home backed out of the deal using inspection issues as a motive. That said, we could no longer close on the new house. The seller want our earnest money. We have no contingency regarding the sale of our home in the contract and on paper it says we can go to closing and afford to carry two mortgages. I agree, but that’s if we want to eat paper and have no quality of life. Do the sellers have a right to the earnest money or do I have a case to get it back?

  13. The simple answer is to sell your house to someone else. Usually the seller is entitled to the Earnest Money if you took his house off market and did not follow through with the sale. You could say you should have made your purchase contingent on your closing, but would the sellers have accepted the offer that way? Hard to say.

    Often if it is a large Earnest Money Deposit, the parties agree to split it, or come up with some compromise. If it is a small amount, maybe the sellers deserve it for being off market and back on market later in the selling season.

    Think about what damage you have caused them. What should you pay them for that? Best answer is to be more serious about getting your house sold and buying their house, even if it is later than expected.

    What were the issues in the inspection? Was it really an excuse? Or were there some legitimate concerns that could have been addressed?

  14. The inspection issues were superficial and not structural. They had an inspector or created problems that didn’t really exist, such as a leaky furnance, low water pressure (inspector said could cost thousands of dollars to repair), electrical issues, and a nonfunctioning hot tub. We had the furnace serviced–no leak was found. We had a plumber out, who rectified issue for $98, Our borough’s building officer was providing us with a letter of occupancy, nullifying any electrical issues, and money was alloted for the hot tub to be fixed based on a phone conversation with a certified tub dealer. Yet tehy said we were unwilling to compromise. We live in NJ, do we have a right to their earnest deposit?

  15. A home inspection reveals many things, and is not really a “structural” inspection. Rarely are the issues that cause a buyer to cancel the contract, structural issues. Just a lot of little things piled on top of one another. For instance, the heater. How old it is is often more important than whether or not it works. If it is past its life expectancy, the buyer will likely need to replace it some time in the near future, leak or no leak.

    When a buyer does an inspection, they are calculating the amount of money the home may cost them in the next few years. If they can’t afford the expenses that the inspector says will likely come up in the next 1-3 years, in addtition to the costs of purchasing the house, then they no longer can afford to buy it, based on the inspector’s findings.

    Where you are geographically, is not as relevant as the inspection addendum provisions. Most provide for the buyer to cancel for most any reason. It’s really a timeframe where they can cancel more than a “for cause” issue. That is why listing agents try to shorten the timeframe for the buyer’s right to cancel. 7 days is often the most appropriate. Here that can be 5 business days, which often translates into 7 calendar days.

    If the seller needs to sell and close in order to purchase, they either wait for all “out” clauses to expire before contracting for another home, or make the offer contingent on the closing of their home.

    The person who holds the Earnest Money can tell you if they buyer cancelled within the legal timeframe provided in the inspection addendum. If they asked you for something and you refused their request, the initial timeframe is extended by the days you have to answer and the days they have to answer you.

    It sounds like they cancelled within their legal timeframes. They had a legal “out” clause, meaning they have the right to cancel in that timeframe and get their Earnest Money back, and you had no “out” clause on your end.

    Logic is not what determines whether or not you keep the Earnest Money. It is the wording of the Inspection Addendum in your contract. So read that carefully and have your agent or escrow holder calculate the days. If they cancelled in the timeframe, they get their Earnest Money back if the Inspection Addendum required that the inspection be to the buyer’s satisfaction, as it probably did.

  16. Can a seller keep a large sum of earnest money if the preferred lender qualified me in June to purchase a home but now says he cannot with the current market crisis?

  17. Jaime,

    The simple answer to the question “can” is sometimes he “can” and sometimes he “can’t”. The seller’s ability to keep the Earnest Money…or not, has nothing to do with your being qualified by a lender. The finance contingency is about your being approved by a lender.

    The agreement between you and the seller will spell out in the finance contingency the amount of time you have to get approved (not qualified) and the date by which you need to notify the seller, in writing, if you cannot get financing. If you are within your timeframe and cannot get financing and met all of the requirements of the Finance Contingency regarding timely notification to the seller that you could not get a loan, then you get your Earnest Money back.

    If you did not receive a loan denial within the timeframe allowed, then you need to see an attorney about whether there might be some other basis for getting your Earnest Money back.

  18. We have a house that was due to close 8/27 in Anchorage, AK. This was a FSBO handled by a broker. The contract did stipulate contingent on them selling another property. .The house has a building that is a fully functioning unit that is not zoned for rental but can be used for guests. The buyers knew it did not meet code. The inspection copy was never given to us as promised by the buyers. The buyers came back with many superficial repairs. My husband was with the inspector during the inspection (he had inspected our house 1 & 1/2 years earlier with no problems). No problems were mentioned during the inspection about the 4 year old home. The status of the additional structure needed to be termed a shed due to not meeting code. When the appraisal came back lower than the asking price the buyers had 3 days to counter offer. They did not respond – ever. After requesting information from them via phone and e-mail, they e-mailed us 2 weeks later on 8/22. They asked us what “our proposal” is. They also mentioned their property did not sell. The contract stated either party could extend the agreement on 8/24. They did not ask for an extension, just commented that are unable to get money for a downpayment due to the contingency on 8/24. Would you please let us know how we can keep the earnest money since the house was off the market for 6 weeks? How do terminate the contract?

  19. My husband and I have a house (in the state of California) that was due to close escrow on 9/28. When the closing did not occur on that day, we were told that the delay would be minimal, no later than 10/3. On 10/4, our agent told us (through the loan processor) that he was sending out a perform or quit letter asking for a per diem charge of $100 effective 10/8 until the transaction is completed. It is now 10/11 and escrow still has not closed. The latest word from the buyer’s agent was that an appraisal review was ordered (due to the current marketing conditions), and the review is not complete. I’ve been speaking to the loan processor daily, and I get the same response (the buyer’s agent is not responding to email or voice mail). Today I requested copies of all correspondence, including the perform or quit letter and I found out that the letter was never sent to the buyer’s agent. Supposedly there was a phone conversation between the two agents and they agreed to these terms verbally. I’m VERY dissapointed with the way this transaction has progressed but my position is very delicate because our agent is my husband’s boss. How can I exercise my rights in this matter? Where would the earnest money deposit go in this case?

  20. Disappointed,

    If the problem is the value of the house not appraising at what it sold for due to market conditions, I don’t see how this is the buyer’s fault. Is there a “must appraise” clause in the finance contingency? If the house won’t appraise, then basically it sold for too much money.

    The problem appears to be the house, from what you have said, and not the buyer or the buyer’s credentials.

    As to what would happen to the Earnest Money, that depends on your contract and what it says happens if the house doesn’t appraise for the sale price. Usually there is a further negotiation of price unless the buyer agreed in advance to pay the difference in cash, and can pay the difference in cash.

    Generally speaking, I don’t know of any Earnest Money holder who will release the Earnest Money to either party in a case like this, without the signatures of both the buyer and the seller.

  21. can a buyer get his earnest money back if he did not disclose his tax problems to the loan officer prior to getting his preapproval letter

  22. If it were a direct question on an application and he answered no instead of yes, then possibly. But likely the question wasn’t asked that directly and the potential borrower did not make the connection between the two. If it were not on his original credit pulled before the pre-approval was done, and surfaced later, likely no one anticipated the loan would be denied based on this problem.

    I had a client once who had a judgment and had no idea it would have an impact on their buying a home. Not everyone makes the connection.

    I don’t think there is any guarnatee of completion implied to the seller by the pre-approval letter. If the pre-approval letter established with certainty that the loan would be done, there would be no need for the finance contingency.

    Generally the buyer can’t get his Earnest Money back based on the Finance Contingency unless the seller signs the release, nor can the seller take it unless the buyer signs the release. The costs of fighting can eat up the Earnest Money. So best to come to some agreement.

  23. Page 3 of the 1003 (loan application), declaration f asks:

    “Are you presently delinquent or in default on any Federal debt…”.

    If a buyer was attemting to commit fraud by hoping they would not get caught “not disclosing tax problems”, is there earnest money refundable?

  24. Rhonda,

    For some people asking if you have “Federal Debt” and asking if all of your taxes are paid up to date, are not the same question.

    Would the seller have access to all of the details of the borrowers loan application to press this issue to keep the Earnest Money? I wouldn’t think so.

  25. Ardell, if you ask a borrower if they’re “presently delinquent or in default”…I think most know and if they don’t know, they need to ASK QUESTIONS. This is a legal document.

    In Brian’s scenario, the borrower knows that have tax problems (we’re both making our own assumptions on what they are) and made the decision to not disclose this to the LO. And then get’s caught. Sounds like potential fraud to me.

  26. Rhonda,

    I agree that from your perspective it would appear so. But the question is can he get his Earnest Money back, and the lender’s position is not necessarily involved in the answer to that question.

    The Finance Contingency requirements need to be met and I’m not sure that the seller should know the exact reason why the buyer could not get financing, to the degree he appears to. Seems more like a breach of confidentiality on someone’s part for Brian as the seller to know that the buyer had tax delinquency issues.

  27. I and my real estate agent negotiated a sales contract on my home and the buyer deposited $500 earnest money with the title company. After the 10 day option period the buyer decided to pull the contract because her inspection revealed termites and a small leak in the roof. I was more than willing to do a termite treatment (which I did) and fix any leaks. The buyer felt that we lied on our disclosure form and refused to continue the closing process. Subsequently, we got another contract on the home and are ready to close, but the title company claims that they can not close on the contract because of the previous contract wasn’t settled. The previous buyer doesn’t want to release the earnest money. We demanded the earnest money because the closing process was stopped, with no formal written withdrawl and it was after the termination period of 10 days. Question: Can the title company legally hold up closing on the new contract because the old one wasn’t settled. Does this mean that I have to release the earnest money, dispite being legally due it?

  28. Release of the Earnest Money does not necessarily in and of itself release you from the previous contract to sell to a different buyer. I think the Title Company is making a business decision not to take any risk. I suspect it is their right to do so and is not a matter of legal or illegal. They are not simply handling the closing. They are insuring the new buyer against claims, and may not be willing to issue Title Insurance if they feel a claim is possible from the previous buyer.

    That said, I have closed on a second sale without releasing the Earnest Money from a previous sale. You said the buyer “decided to pull the contract”. If you have something in writing saying they were cancelling the contract, the release of the Earnest Money should not be a factor prohibiting your selling it to another buyer. It shouldn’t cost much to have an attorney review it, but it could cost as much as the Earnest Money you are trying to keep, given it is only $500.

    You need the previous contract released, and simply giving someone $500 may not accomplish that.

  29. My husband and I were approved a home loan, the sellers changed the closing date 3 times, in which we agreed upon the extensions. Due to the extensions, the mortgage co. we are going through has changed credit score requirements, therfore we were in need of a 3 week extension, to add a couple more points to credit score, by paying off a couple bills, the sellers didn’t agree to the extension, is there any way we can get our earnest money back.

  30. Shar,

    If the sellers haven’t sold the house, I would first try to make it work. The house isn’t gone until it’s sold to someone else. If you say, no, I don’t want it now, then you are not cancelling merely due to financing.

    Here in our area what would happen is you would rescind the offer due to financing, and sign the release of Earnest Money “to buyer”. If seller signs it also, you get your Earnest Money back. If they change the “to buyer” to “to seller” the money would be released to neither. Both parties have to agree and sign for the money to be released.

    If the parties don’t agree and the amount is small enough, it ends up in small claims court.

    How much is the Earnest Money? Is it under the small claims limit.

    If the Finance Contingency covers you until closing and extended each time the closing date extended, then you might get the Earnest Money back via the Finance Contingency. But generally the way you get your money back that late in the transaction requires that both the buyer and seller agree and sign the release, regardless of who is legally right.

    If you have the proofs that the date change and lender requirement change caused the problem, send that to the seller with the return of earnest money to buyer request.

    Of course consult an attorney, especially if the amount is more than nominal.

  31. Wow! Some people are still doing the earnest money thing in THIS market?

    Last three transactions in the past 6 months had no earnest money changing hands and one less potential problem in each exchange.

    Old habits die hard, but the reality is that markets go up and they go down. Earnest money in a market where it’s not necessary isn’t good or “good faith”.

  32. I was a buyer in the sell of real estate property which fell through because we did not get the financing. Although it was stated in the contract that if neither buyer or seller could obtain financing that we (the buyers) would get our earnest money back and in addition we submitted a letter of denial from the finance company, the seller flatly refuses to return our $10,000 earnest money.

    Once Letter of Denial was sent to the seller’s attorney she stopped answering his calls and her attorney then told our attorney that he was no longer in this because the deal had fallen through.

    This seems so unfair and is also seems unfair that the attorney we had for this transaction does not do this kind lawsuite – to recover our earnest money (I was told this after the fact). Also, I cannot find an attorney to take the case. I have been getting the run around from those who say they do but they don’t return my calls.

    I have filed a small claims case but am unable to determine who to serve. I have already tried to serve the real estate agents but the sheriff was unable to serve them. So now I found out that it would be better to ask for an Alias Summons by Special Process Server to serve the papers. But I still don’t know EXACTLY WHO to serve and will have to go through loops to get who I think should be served.

    Who ultimately gets MY $10,000 and why? It’s crazy why the Illinois Department of Financial and Professional Regulation cannot intervene when in this type of situation when a seller just blatantly refuses to return earnest money. When the reason for not purchasing the proper is due to our inability to get financing and when we have all of the supporting documents.

  33. What happens when the Escrow money ($30,000 in our case, for sale of our business) was found ‘missing’ when it was time for it to be released! Because the full amount of the escrow was being signed over to the buyer (to cover unforeseen additional expenses and bills) he took us to court because he believed WE were responsible for the money due to him (which was supposed to be the amount held in Escrow) and that it was up to us to try to get the ’embezzled’ money later. With advice from our lawyer, and the judge, we grudgingly agreed to pay it to the buyer out of our pocket, and then go after the escrow. As the judge was about to ‘close the case’. The buyer’s lawyer said that wouldn’t do now, we now owed more to him, because the ‘missing escrow’ caused him to lose business while waiting for the Escrow money to be ‘found’. The whole issue was sent back to mediation (costing us yet more hundreds/thousands in legal fees). By the time it was over we ended up paying $20,000 MORE to the buyer (for lost income and increase in construction expenses) not to mention the $5,000 or more in court costs! ALL BECAUSE the ESCROW COMPANY couldn’t ‘find’ the $30,000 we entrusted to them!! It’s STILL ‘missing’! The Escrow money came up missing a YEAR ago! We have made phone calls, worked with the detectives,had meetings, been told ‘be patient’ we’re working on it, etc. Our lawyer finally sent a letter, this summer, threatening a lawsuit, siting a precedent that had been set, in Michigan, where if the Escrow Money is not kept (protected), and able to be released to the proper party, that they will have to return 3 times the amount that was originally entrusted to them. As I write this we are waiting to hear back from our lawyer. We currently transferred out of state with our job, and not being ‘in town’ makes it more difficult to keep things moving. Has anyone dealt with such a thing? This is a HUGE amount of money to us. We’ve had to get a mortgage on our home to pay the buyer of our business, and $60,000 (plus) of it is SOLELY due to the ‘missing Escrow’! We feel we were the ‘innocent’ by-stander caught in the middle.

  34. Sounds like you already have an attorney, and they’re going to be able to comment on it better than anyone here based on your comments.

    I’m a bit surprised by the comments that the money is missing though. It sounds like the escrow was running a shortfall in their trust account, and that could have been going on for months if not years, but it seemingly shouldn’t be that difficult for a forensic accountant to determine who was improperly pulling the money out. Stated differently, the money isn’t missing, it was taken, and it’s hard for me to believe that would be that hard to determine (unless this escrow did a huge amount of transactions and the problem started years ago). The other problem though is I suspect you’re not the only one, and so determining exactly where your money went would be difficult, but determining who is responsible shouldn’t be all that tough in most cases.

    • This is very strange…I just now, May 3, 2010 am seeing your reply to my question, as I was searching for answers to the SAME question! The reason being we STILL do not have our $30,000! Your comment that the money isn’t ‘missing’ is correct…it obviously was TAKEN. It was a Title Company in a small town, that only had an owner and his wife, plus 2-3 employees. One of them was being ‘investigated’…ours wasn’t the ‘only escrow’ that turned up ‘missing’ (taken) but was the largest. We have been paying 2 different lawyers to work on this. WEEKS go by with nothing. Months go by. The latest feedback from our lawyer is that the “Underwriter” (Stewart Title, a large national Title Company) had their lawyers contact him that ‘they’ aren’t responsible for the missing escrow. (Excuse me, ‘taken’ money). The new owners of the Title Company were we place our escrow claim innocence as well, saying the money from our escrow wasn’t in the account (or bank ??) when they took over the business, so it’s not “their” responsibility either! The original owner has since moved out of state and claims it’s ‘not his responsibility’. It’s clear to us that SOMEONE has dropped the ball on this and we are continuously putting out money and time and effort with absolutely no progress, no help, and no support. WHO (besides our lawyer) do we talk to….we could probably make MUCH FASTER and definitely CHEAPER progress on our own. The lawyer actually said at one point that we have to file a complaint with the Police?? There WAS a detective on the case the first month or so that we found out the Escrow wasn’t in the account…but NEVER have we received any correspondence from them or contact. We just have kept waiting on our lawyer and paying endless fees for ‘phone calls’ etc. BOTH lawyers seem to have thrown their hands up on the whole thing and also said we need to just ‘sue the original owner’. Why haven’t we just been reimbursed by Stewart Title, the underwriters? Just boggled!! It’s unreal that I’ve ‘found my post’ after all this time, and am still dealing with the SAME issue!

  35. Trish,

    In most States the missing escrow monies is something the State authorities would get involved in, in addition to your privately funded efforts. Who was the Earnest Money holder? An attorney? A Title Company? A Brokerage? Most States would be sending out someone to investigate the handling of Earnest Moneys separately from your attorney based efforts. Have you checked with your Department of Licensing for assistance in that regard? The Real Estate Commission of your State?

    I know nothing about Michigan, but have yet to see a State that doesn’t have some controls in place for the handling of Earnest Money deposits.

    • I can’t believe I never saw your reply, and it’s now May 3rd, 2010!! And the reason I just NOW found this reply, is because I was SEARCHING for answers to the SAME question…for the SAME issue…it’s never been resolved!! I’m beginning to think BOTH the lawyers we’ve had working on this have no clue to what to do!! In answer to your questions…The Earnest Money was deposited with a Title Company. We did not check with the Dept. of Licensing …but WILL DO THAT tomorrow! This is ridiculous that it’s still not settled and we’ve still not been reimbursed for our $30,000!!! Ours wasn’t the only escrow missing I guess…but it was by far the largest! My husband spoke more than once with a police officer (or detective) working on trying to determine who ’embezzled’ the money. Neither us, nor our attorney, ever received any results of their investigation. Stewart Title (large, national company out of Texas I believe) is the underwriter. They were for the Title company we used, as well as for the ‘new owner’ who bought the original company just prior to us finding out our Escrow was ‘gone’. Obviously suspicious on part of the old owner! Regardless of all that…I would think that Stewart Title should have given us our Escrow, and then worked at finding when it was taken and who took it. Thank you for your reply and suggestions. If you have any other advice I’d love to hear it.

  36. My husband and I were in the process of purchasing a home in August 08. My realtor asked us for a check in the amount of $500 for the earnest money in which he only made a copy of the check and I kept the original. We went through the whole process of signing loan papers and when it went to underwriting the loan was denied. Now my realtor has been calling me asking me for the $500 check, which i don’t have anymore because at that time he didn’t collect the original check and since the loan was denied, i destroyed the check. Am I still liable or responsible for giving him a check in the earnest money amount of $500?

  37. Shannon,

    The agent’s in big trouble. When you wrote the check, did you not have the money in the bank to cover it? I can’t think of any other reason why the agent would have given it back to you. Not that he should have given it back to you for any reason. Likely you were in breach of contract way back in the first few days of the contract, by not delivering the Earnest Money to the escrow holder within the timeframe of the contract.

    From what you are saying the loan docs were prepared and signed and the loan kicked out at the very last minute when it was supposed to fund. The agent was in trouble (if this is a local transaction) a very long time ago, when the monies weren’t deposited within a couple of days of the offer being signed by the seller.

    He’s in trouble with the Department of Licensing, or rather his broker is, even if the sale had closed. If it is determined that the Earnest Money belongs to the seller, even if the agent uses his own $500 to make the seller “whole” with regard to the contract, he’s still in trouble with the DOL.

    So the question is, do you want the agent to have to pay the $500? He’s in trouble either way. It’s now a matter of is he in trouble AND out $500.

  38. Yet another example of why earnest money is an outdated practice that should be retired until such time as intense market competition returns.

    There are many other actions that can be employed instead of earnest money to increase buyer obligation without the introduction of this often problematic and outdated exercise into a complicated deal.

  39. Sean, I don’t understand why you think this is an example of earnest money being outdated. It’s an example of an agent not knowing what they were doing.

    But I can’t imaging an alternative that would be better than earnest money from the buyer’s point of view. Absent earnest money, the buyer could be on the hook for actual damages. You might be able to draft a liquidated damages clause that would do the same thing, maybe.

    Also, the earnest money does show how substantial the buyer is. A low earnest money would tend to indicate someone that would have difficulty getting financing. I guess you might be able to do that with financial statements, but the seller is likely to want to see cash.

  40. well i am selling my home. i signed a purchase agreement and put down earnest money of 500. now i still want to sell my home, but do not want to purchase the other house. what happens if i back out of the deal? oh i live in michigan.

  41. Jeff,

    Earnest Money = what the seller gets to keep if the buyer “backs out” as in changes his mind about buying it. That IS what Earnest Money is for, and so if you are backing out, seller keeps your money.

    But if you made an offer contingent on the sale of your house, there is a time when that contingent offer expires and you get your Earnest Money back. If you exit your purchase agreement at that “legal out” time, then you get your Earnest Money and you can sell your house after that point in time. If you have an agent that is selling your house and/or an agent on the house you are buying, they can show you the date that your contingent offer expires if you do not sell your home by that time.

    If you tell anyone that you changed your mind…the seller gets to keep your money. So the question is “when does the home sale contingency expire” and not “How do I get my money back if I change my mind about buying the house.” Changing your mind equals seller keeps Earnest Money Deposit.

  42. Jeff, what Ardell explained is what typically happens in Washington. Different states may have different laws, or even assuming the form is identical to the NWMLS form, an election of remedies choice may be checked, in which case $500 wouldn’t be the limit of your exposure.

  43. Kary,

    Not all states have a choice between damages and liquidated damages, as ours does. Many have liquidated damages as part of the boilerplate without option.

    It still amazes me when people say “I changed my mind how do I get my money back”. It’s pretty universal that the purpose of Earnest Money is for the seller to keep it if you change your mind. I’m not sure what people think Earnest Money is, if not that.

  44. On Dec 7 2008 my realtor presented me with a purchase agreement and stated that the buyers had a full loan in place. At the end of the contingency period (21 days) I requested loan approval , termite, appraisal, etc so we could remove contingency. Our realtor (seller/buyer) asked me to wait 6 more days. 6 days later and nothing at which point I demanded to know what was going on. On 12/30/08 I found out that the buyers were only pre-approved w/contingencies. They needed funds in the bank for closing plus gift letters. I presented my realtor with Notice to Perform which really upset him and he harrassed me but went ahead and had buyers remove contingencies knowing they would lose their ernest money. Our realtor assured me 100% that escrow would close on time 1/21/09. I made it clear I would not extend escrow, verbally and written. In the meantime our realtor and the mortgage broker continued to harrass me over the phone. They wanted me to extend escrow. The buyers did not deposit their money until 1/15/09. The day before closing my realtor came to my house and apologized for their harrassement towards me and asked that I reconsider. Since she could not give me a date when they would close I chose not to extend escrow. I signed the escrow cancellation on date escrow was to close and have asked to return ernest money to buyers ($6000) just to get them out of my hair. They have not signed the release and am wondering what they might have in mind. My contract does not require Notice to Perform for escrow. Can they file a lawsuit against me?

  45. Anyone can “file a lawsuit against” you. I don’t understand why you wouldn’t want them to have the house if they are a day late? Did you decide you didn’t want to sell it after all?

  46. Re 45 it sounds like it was possibly much longer than a day.

    My comment would be that no one is fully approved for a loan at the time an offer is made. For one thing, the house would need to be appraised.

  47. It continues to amaze me to hear the old reasoning being put forth with regard to the use of earnest money, as if we are still living in the 1980’s when this was good practice. Agents and sellers who continue To ask for earnest money only show their lack of due dilligence with regard to qualifying potential buyers and a desire to reduce the profession to the techniques only still used by car salesmen. Perhaps some continuing education with updated business practices is in order. Unless of course you just enjoy needlessly complicating your transa tions.

  48. C.F.Hitchford,

    Your comment is naive, at best. Clearly many people were pre-approved for a loan…only to have the lender change the requirements during escrow. This has happened repeatedly over the last 18 months.

    One cannot foresee in advance that the lender is going to increase their desires regarding credit scorings and downpayment requirements. Sellers, with few buyers in the marketplace will be be willing to take some risk that the transaction cannot close, but want the Earnest Money if the buyer simply gets “cold feet”.

    Earnest Money is clearly alive and well…if anything, the Earnest Money amounts will be higher due to the risk factors present in today’s marketplace.

    Anyone who thinks current inventory is going to be absorbed without creative financing and without people taking on risk that the escrow will not close, is kidding themselves.

  49. Kary,

    What to you make of Mary Ann not being willing to sell if the buyer is a few days past closing? Seems to me that is not “proceeding in good faith”. If a buyer is able to close a day or two late in this lending environment, seems everyone should be happy…not refusing to close.

  50. As to the recent earnest money comments, earnest money benefits the buyer. Absent a forfeiture of earnest money clause, the buyer would be liable for actual damages if a sale doesn’t close. And as Ardell noted, that can happen for reasons beyond the control of the buyer. Getting rid of earnest money would mean fewer people would want to buy real property.

    As to the proceeding in good faith, I don’t believe there’s any requirement that a seller extend a closing date where the buyer can’t perform. I’d have to check, but I believe there’s a “time is of the essence” clause in the P&S contract that means the time limits can be strictly enforced. Whether doing that in this market is a good idea is another matter.

  51. Kary,

    You don’t have to look it up…we both know the letter of the contract syas the seller can keep the Earnest Money. But I find it hard to believe, say if the loan funded too late in the day to record on the close date, that a judge would award the money to a seller who refused to close the next day. Let’s assume it is a Court of Equity.

  52. What I’m saying is I think it would turn on whether the contract says time is of the essence. I remember my Contracts professor describing that as the clause that says: “and I really mean it, damn it!” Absent such a clause and a buyer would be more likely to get leeway.

    BTW, where it was just a funding issue, it’s possible an automatic extension clause would cover it, and allow the sale to close. That would assume the buyer wasn’t the cause of the funding issues.

  53. LOL, Kary,

    I gave you some wiggle room, but you keep going to the letter of the contract. Unfortunately that makes you “wrong”. Trust me…I’ve seen it in Court. Judges listen to the “story” and decide accordingly, and do not merely impose the contract provision as written. If that’s all there was to it, we wouldn’t need “judges”.

  54. Yes, Ardell, you’re an expert on “having seen judges.” I’ve never ever seen a judge in my entire life. 😀

    Actually the strict deadline is there for a reason. If you’ll recall our discussion of lease options, etc., part of the concern with those is getting a property tied up in litigation that can last years. Part of that is related to the fact that these type of contracts start to take on more of the attributes of the old style real estate installment contract.

    Under common law (as opposed to the current statutes covering forefeiture of such contracts) if an owner made a payment late the court could provide equitable relief of the type you suggest. But that’s the last thing a seller would want with a P&S contract. Sometimes in the real estate contract cases the payment was weeks or even months late, but the property still ended up in litigation. But for the enforcement of strict time limits in P&S agreements, the same thing could happen.

  55. Kary…like I’ve said before…go write your own post and you can be “right” ALL the time on your post, and the comments thereto 🙂

    Here on my post, there is no way in hell anyone would understand why a seller gets to keep $50,000 of the buyer’s money just because the funding came in at 4 p.m. and recorded the morning after the stated closing date in the contract. “Anyone” includes the Judge. Wouldn’t happen. In fact, it would likely be perceived that the seller changed his mind about selling…reneged…and might have to pay the buyer’s costs of inspection, appraiser and lender fees. Possibly moving costs and hotel costs…i.e. “damages”.

    Seriously, can you see a Judge in his right mind saying a few hours late should cost any buyer $50,000 plus not getting the house? Get out of the classroom and what “The Professor” said.

  56. Here’s language from a case where they were three days late (123 days rather than 120):

    “The earnest-money agreement in question is clear and free from ambiguity as to those points essential for decision. Time is made the essence of the agreement, and a termination date is fixed. Payment was not tendered until after the agreement by its terms had expired. Absent conduct giving rise to estoppel or waiver, no further action on the part of appellants was required to effectuate the termination. There is no forfeiture involved, for the agreement, by operation of its time provisions, became legally defunct.”

    Beers v. Nadeau, 73 Wn.2d 608.

    BTW, there was once a judge I knew, who I won’t name, where I used to say: “Equity abhors a forfeiture, but Judge XXXXXXXX loves em!”

  57. That’s why I said “in a Court of Equity”. If you want to point out the one Judge who is SUPPOSED to be equitable…but is an asshole…well, how many people want to gamble on getting that one asshole for a Judge?

    Suffice it to say, we have both seen cases fall on one side or the other of this. Bottom line is no seller should be trying to keep the Earnest Money IF it is the seller who decided to change their mind about selling. Any decent judge would figure that out during testimony.

    In the end we are agents and not lawyers, and as an agent I would never think a seller should try to keep the buyer’s money for being 12 hours late on closing. Never.

  58. I would agree that a seller shouldn’t do that. But that’s different than whether they can.

    BTW, given the fact that a sale can fail to close for any number of reasons beyond the control of the seller, offering too high of an earnest money really isn’t probably the best idea. (But again there is a percentage limit to what can be forfeited.)

  59. Kary,

    It’s not appropriate for either one of us to give “legal advice” on a blog. So the ONLY correct answer for either of us, as agents, is the seller should NOT be trying to keep the Earnest Money if the buyer is a day late. Period!

  60. BTW, I wouldn’t describe a judge making the decision I’m referring to in that manner. They are simply following the law. Certain things are not subject to equitable relief, and judges have to make difficult decisions that they don’t agree with all the time.

  61. “Equity abhors a forfeiture” is a common legal saying. I was just adding to it. The explanation point was merely for emphasis.

    Since I represented debtors more than banks, typically it was my clients’ interest being forfeited. So no, I wasn’t happy about it typically.

    BTW, when you’re in court and you get to the point about having to argue it’s a court of equity, that means your argument is pretty weak. About the only thing worse is having to cite the Magna Carta (something I once saw someone do).

  62. Kary,

    Most days I think you’d rather be a lawyer than a real estate agent. That’s kind of sad. If law is your passion…you really should do it.

    ““Equity abhors a forfeiture

  63. Off Topic: I once had a Judge refuse to let me speak as an expert witness, because I was more than a little pregnant, and that made the Judge uncomfortable.

  64. I enjoyed practicing law, but 20 years of it was more than enough.

    And you’re right it is the luck of the draw on judges–especially in some courts. I was fortunate to practice in bankruptcy court where the quality of judges is rather high, but they’re still human and have their own variances. Some for example might tend to favor debtor more than creditors or visa versa.

  65. Kary,

    Often it boils down to whether the judge is picturing HIMSELF as a buyer or a seller…more often, I suspect, it’s a seller. Still…most people would not view a one day delay as a reasonable obstacle that cannot be overcome. Judges in the end, are people first.

    Back to Mary Ann…why would she not want to sell it if it is a day late or even a week late? That is not normal. That sounds like a breach on the seller’s part, regardless of the contract provisions.

    I just got off the phone with an agent who has a 3 week late closing. The seller is cooperating. The culprit is the financing. Any seller who doesn’t understand that financing is “an issue” these days, is living in a cave. Things WILL be late at times…it’s often unavoidable and every seller should be warned in advance that there might be delays.

    If the seller has another buyer who will pay more, and wants to invoke the time is of the essence clause for that reason…that is reasonable. But there has to be a good reason.

  66. Kary,

    I also saw a lot more lawyers and judges in my previous career of 20 years from 72 to 90 or so. Often what we bring with us to the real estate field, flavors our expertise. For me it is financing and banking issues plus a smattering more experience with legal than the average bear.

  67. Ardell, again in Mary’s case it sounds like it was more than a day. It sounded like she couldn’t get an estimated close date and got fed up for some reason.

    As to what judges will do, I think this is one area where the case law pretty well ties their hands. That won’t stop some judges, but I think it will stop most. That said, in other situations I’ve seen attorney show up fully expecting to lose, because the other side has a pretty strong position, and they win due to a judge’s peculiarities. So it happens.

  68. Ok let me try again. Please read carefully Ardell. My contract began Dec. 7, 2008. Throughout the contingency period (Dec 7-30) I was told the buyers had a loan. On Dec. 30 I demanded to see the loan approval papers. At that point the agents, which by the way are the buyers agents as well, finally admitted that the buyers could not get a loan until they deposited a certain amount of funds. A phone call on that day to the mortgage broker, who is in Utah, was initiated by my agent to confirm the status of the loan. The mort broker explained that the buyers had no money in the bank and needed to deposit money and provide gift letters 10-15 days before 1/13/09 (not on the 13th) so that they would close on time. The mort broker said the buyers needed to have their money seasoned. On 1/7/09 the buyers still had not deposited their money at which point I presented my agents a “Notice to Buyer to Perform”. This angered my agents to the point that they began harrassing me on the phone. The agents stated that the contingency part of the contract was valid and that they do not go by it. My realtor and the mort lender than began to harrass me over the phone and screaming that I did not know what I was doing and that the “Notice to Perform” was not valid and that I was dumb etc. The mort broker whose business is in Utah also told me that I had to go by Utah escrow laws not California laws since the buyers were getting their loan from them. That is when I made it clear that if the buyers did not take this serious I would not extend escrow beyond closing date. They finally left me alone after the Notice to Perform was signed by the buyers. I thought all was going well, I’m packing and moving when the day before closing date (Jan. 20) my realtor came to my house and apologized for the harrassement her, her husband, and the mortgage lender had given me during the time I was asking for the buyers to remove contingencies. The realtor agent blamed the buyers for piddling around and not getting their money in on time. The buyers waited until the last day they had to deposit their money which was 1/13/09. They were supposed to have the money in the bank 10-15 days before that date! I didn’t see where my agents were representing me at that point. Why didn’t they push the buyers? Or why didn’t they just cancel? My realtor asked me to reconsider extending escrow, but she could not give me a date when it would close because she said the buyers were hard to get a hold of. I decided not to extend escrow. I submitted to the escrow officer a cancellation of escrow which she totally ignored. The escrow officer continued the escrow process. She had the buyers come in(apparently a day after escrow was supposed to close). Escrow was supposed to close on 1/21/09. On 1/23/09 the escrow officer called me early a.m. and said that the funds were in. She wanted to know if I’d change my mind. She said it would close that day if I did. I reconsidered it and told my realtor to go ahead thinking it was closing on Friday 1/23/09. I waited and waited and then my escrow officer called late that afternoon and said that we couldn’t close until next week. I was let down and also feel that they are playing games with me. Why should I be the bad guy when these people aren’t serious enough to get things going? I’ve been completely faithful to this contract and have not breached any part of this Calif. contract. This just doesn’t make sense. If the buyers were serious why did they wait so long to deposit their money? I’m being harrassed when it’s not even close near my fault. The buyers are the ones holding up the process. There’s a clause in the contract that buyers need to perform their duties delingently and timely manner. So now I’m in breach of the contract? I do not understand what good a contract is for. How does it protect me? Now what do I do should I just keep going or what are the repercussions if I don’t? Please enlighten me. Thanks for listening.

  69. How hard would it be for a buyer to get a finance contingency in the offer, to protect their earnest money in case of financing troubles?

    Mary Ann was willing to return the earnest money to the buyers.

  70. Cautious Buyer,

    If you have worked really hard at doing your inspection and your loan process for six weeks, getting your Earnest Money back instead of getting the house you want to buy, is really not much consolation. Lots of wasted energy and time and you have to start all over again.

    For the buyer, yes they want their money back always. But what they really want if they can perform now…is the house.

  71. “My contract began Dec. 7, 2008. Throughout the contingency period (Dec 7-30) I was told the buyers had a loan.”

    That cannot be true as no buyer can “have a loan” until they have a contract. So there is no way they “had a loan” from Dec 7 – 30, and while some agents (particularly in CA) think 21 days is reasonable…in this mortgage environment it VERY OFTEN is not. They are still writing that 21 day period the same way they did during loose lending and it is no longer appropriate to do so in many, if not most, cases.

    It is not uncommon for a loan to take 45 days of processing time in the current mortgage market environment, especially if there are fund and gift issues.

    If the contract wasn’t in place until December 7, they could not have had a loan on December 7th. Not possible.

    I will answer the key points in your comment in pieces like this.

  72. I made similar comments about the loan approval time back in #48. I’m not sure, however that the extra time today isn’t due to the volume of refinances going though, rather than tighter standards. Perhaps Rhonda could comment on that.

  73. I see you confirmed the CA part of it in the email, and coincidentally I just spoke with an agent having these exact issues in CA just yesterday.

    The problem is that many of the issues in loan processing today have not been in place for at least 5 years, so many are not anticipating the need for gift letters, gift letters on the appropriate and acceptable template used by the lender, seasoning of funds, etc…

    The agents are not in the know these days, the lenders are not in the know these days, on these requirements which were not commonplace for a very long time. If the professionals are not anticipating these issues adequately, then clearly it is not fair to impose a higher standard on the buyer.

    Seasonong is a term most people don’t understand, and often requires “seasoning” of at least 30 days and often 60 days…so the whole 21 day thing was obviously a carryover from days gone by and inappropriate. The buyer should not be blamed for that. 21 days just made no sense whatsoever.

    BUT THE BOTTOM LINE IS if the buyer can buy your house, and you do not have another buyer in hand…why would you want to make all their efforts to date of no value to you or to them?

    They want to buy your house and you want to sell your house. Why get so annoyed at the nuts and bolts of the process to the point of negating your object and the buyer’s objective? That’s the part I don’t “get”.

  74. For the most part, people should be writing contracts with a minimum of 45 days to close, giving the entire 45 days to the loan process, if needed. If there are gift issues, as in this case, before the offer is made the agent for the seller should insist that the monies be IN the buyer’s account BEFORE the seller accepts the contract…or have in the contract “all cash to close funds to be in buyer’s account within 3 days of acceptance.” The exact dollar amount needed should be stated in the contract, to avoid confusion.

    I’m saying, Mary Ann, that you should not be looking for someone to blame here. No one is to blame. Life is changing in the real estate and financing industry. Understand that these changes are creating a lot of problems. Deal with the problems vs. getting mad that someone didn’t do a better job of preventing problems. It was possible to prevent them, yes. But not a realistic expectation given many professionals have never dealt with these issues. I have not seen them since 1993…so many people who have not been in the business for about 20 years may not have been able to anticipate. They did they best they could. They did the same thing they’ve been doing for 5 years, which is no longer “good enough”, but was great in 2006 and part of 2007.

    The BIG issue is IF the buyer CAN at the end of the line, get the financing at ALL…and guess what? Something can change on Tuesday of next week that changes the answer. That’s life. Everyone proceeds in good faith and does their best with the info available today.

    You need to ask “How long is the seasoning period?” Make sure you get the answer, in writing, from the lender. It should be one of the loan approval conditions and in writing. Dont’ take anyone’s word for it at this point. If it says “funds must be seasoned for 60 days”, then don’t try to force it to close before then. You will simply be adding to your own frustration. Hopefully the seasoning period is not more than 30 days…but rarely is it less than 30 days.

    Look at the facts and set a more realistic closing date. The big issue here is that the contract was not written to match a reasonable reality. Go back and re-write it making sure everyone does a diligent reality check before just extending it one week…if they really need 3 weeks or more.

  75. Cautious Buyer,

    “How hard would it be for a buyer to get a finance contingency in the offer, to protect their earnest money in case of financing troubles?”

    In MOST cases, the Finance Contingency does not protect the buyer well enough on the West Coast, and ESPECIALLY in the State of Washington.

    Just “having” a Finance Contingency does NOT mean you are covered to closing, nor does it provide ANY protection in WA if you buy a house thinking the rate is 4.75%, but end up at closing with a rate of 7%. The CA Finance Contingency MaryAnn is referring to usually has a rate cap BUT the agents remove the contingency in 21 days! So…the buyer is SOL anyway.

    Reality is that while the market has shifted from a Seller’s Market to a Buyer’s Market, the forms and the way agents complete the forms has not improved. So the Buyer’s are not getting full advantage of the Pendulum Swing.

  76. Kary,

    There is no one size fits all answer from Rhonda or anyone else. If it is FHA or VA, the answer is different than if it is Conventional. If it is Conventional, but conforming vs. Jumbo…the answer is different. If it is Jumbo and a condo vs. SFH…different answer. If there are gift funds on any of the above…different answer.

    Agents MUST get better versed on these issues and FAST, as they are the ones putting the timeframes into the contracts. What they “have always done” is not good enough, and the buyer’s specifics dictate the timeframes. To suggest too long or too short as a “norm” is not “good enough”…the specifics must be DISCLOSED in order to write a worthy contract.

    ALSO, the listing agent has to have a really good idea of what the appraisal obstacles may be, in advance, as well.

  77. “This angered my agents…”

    They weren’t “YOUR” agents. You and the buyer BOTH agreed, in writing, to Dual Agency. That means they cannot way more heavily on anyone’s side…they are obligated to assist both parties equally in getting it closed. Your wanting to cut and run is not something they can “get behind” as Dual Agents.

  78. “Agents MUST get better versed on these issues and FAST, as they are the ones putting the timeframes into the contracts.”

    I can’t imagine writing an offer without knowing from the loan originator how long they would anticipate needing for funding. Even if you did a seemingly identical transaction the day before with a different lender that took 30 days, that wouldn’t mean that the current lender might not have reason to believe it would take 35 days on the new deal.

  79. Kary…you need to do more than that. You need to know it from conversations with YOUR clients…not the lender. The minute you hear “gift” come out of their mouth, before they even choose a house…you need to “get ON it” way before you are writing an offer…WAY before.

    It’s about you and your clients, not you and “the lender”. The buyer does not NEED to CHOOSE a lender until a fews days INTO the contract…so YOU need to be on top of it…not “the” lender. You and every other buyer’s agent.

    Red Flags in general conversation:

    1) Any indication that they are paid hourly vs. salaried
    2) Any indication that funds are coming from “gift”
    3) Any indication that they plan to “have” any portion of the funds as a result of saving it during escrow
    4) Any indication that they are taking the monies from IRA, 401(k) or any non liquid 2 day available source
    5) Any indication that they are buying anything new, like a car or are taking a vacation where they will be using their credit card more than normal

    It is the agent…who MUST have the close relationship with the buyer and have their ears tuned in to everything said at all times. The agent must be…well, an AGENT and not a door opening order taker.

  80. Yes the agent needs to keep their ears open, and report anything questionable to the loan person. I’d go even further and suggest that the agent warn against things like #5 (new credit transactions). Chances are the loan originator would have done that, but it’s best not to assume, and also some people need to hear things 2-3 times before it sinks in.

  81. Kary,

    The big holdups, like MaryAnn’s and the one I heard about yesterday, are often about “seasoned funds” and seasoning usually can’t start after the contract is written.

    Buyers have trouble choosing lender too far in advance, and many don’t want to choose “the” lender too far in advance. So the lender running your show…well, let’s just say agents expecting that in the past are part of the problem.

  82. Mary Ann, if your agent is representing you for a greatly reduced commision, is a recent graduate of real estate school, or is representing you pro-bono as a charity matter, then the oversights and poor timetable estimations should be forgiven. However, no full commisioned agent should allow themselves or their clients to tolerate these repeated occurances of failing to accurately estimate closing times in today’s market. This is their job. It’s what they do for a living. In what other profession would this sort of disconnect with current market conditions be tolerated? Not even in building construction, where multiple variables exist.

  83. Higginbotham,

    Ideally I would agree, except none of the issues affecting this transaction are “taught” anywhere…it just becomes the blame game. In fact most real estate brokers tell their agents to delegate to the lender, those things the lender should know and do…but that is not good enough, as I said before. BUT it is how most agents are trained these days.

    Expecting the sky to be blue might be OK most of the time in CA, but one must also be flexible for the time when it is not.

    The amount of the commission is irrelevant under all agency laws in all states…so not sure where you are coming from on that one.

  84. MaryAnn,

    Did you not understand that “your agent” became NOT “your” agent when you signed accepting Dual Agency, the agent representing both you and the buyer? You seem to understand that the agents represent “both” parties, and yet everyone keeps calling the agent “your” agent. What part of dual…both parties, is not getting through?

  85. “The amount of the commission is irrelevant under all agency laws in all states…so not sure where you are coming from on that one”

    I think he’s trying to equate cost with quality.

    BTW, assuming it was dual agency (and not just a mistaken belief as occurs under WA law), then the agents should have been assisting the buyers to meet their duties under the agreement.

  86. An addition to my last comment: Even though “our” agent is a “dual agent” don’t you think he/she has a responsibility to act as if he is representing one person when his hat is with the seller? or with the buyer? The contingency for instance: why couldn’t the “dual agent” represent the seller and buyer when the “contingency ends in 21 days”by informing the buyer that his time is up shall we remove contingencies or cancel? I believe this would have represented both buyer and seller. Buyer knows his/her time is up and seller knows that buyers are doing something about it. Everyone is satisfied! I would think that if an agent wants to represent both seller and buyer he/she should wear both hats and have seller/buyers perform their contracted duties. The only time the “dual agent” represented me was when the contract was signed. After that the “dual agent” forgot about the seller to the very end. For those agents who are reading this please represent us both, sellers and buyers that’s all we ask. Thanks!

  87. There is a growing subset of Realtors within the industry who have come to see their primary duty with regard to every matter of the transaction as one of craftfully lowering expectations for all parties. And there are those who remain well versed on the changes in the marketplace and anticipate speedbumps and roadblocks before they arise in order to insure that the transaction proceeds quickly and fairly for their clients. As to lenders, we really should not expect much better performance from them. But that’s why Realtors are so important.

  88. “…don’t you think he/she has a responsibility to act as if he is representing one person when his hat is with the…”

    Doesn’t work that way. Once you are representing both you are representing the transaction to close. Whomever needs your assistance most to get it there, gets the focus at that time. It is assumed that both want the same thing…for it to close…even if that is late.

    MaryAnn RARELY does a seller not want it to close…very rarely…better late than never. Very often it goes past that deadline, more than half the time as to financing. Your attitude is confusing and not commonplace.

    21 days was not enough time, it wouldn’t be fair to the buyer to just pull the plug on him. Perhaps if the agent represented ONLY you, that would have happened. But clearly not in Dual Agency.

    The agent IS helping you, assuming you want to close. If the number of days was 45 from the getgo instead of 21, would you feel differently? By helping the buyer get to closing…he IS helping you. Likely the agent didn’t know the buyer before he wanted to write the offer, as that is how Dual Agency usually happens. So it is likely the agent didn’t know the buyer long enough before the offer was written to know that 21 days was not enough time.

    Not sure about where you are, but in most places having a buyer at all is a blessing! Getting another one to replace the one you have may be easier said than done. Everyone will have worked for NOTHING and why? Why are you concerned about the detail more than selling your house? Confusing.

  89. Kary,

    1) Higginbotham is just making a case for high commissions, best I can tell.

    2) Most agents would be helping the buyer, yes. But in Dual Agency often the Listing Agent meets the buyer within hours of the offer being written. Quite possible the gift issue was an unknown at that time and they are dealing with it best they can. No reason to kick the buyer to the curb.

  90. Higginbotham,

    You sound like a Realtor…if you are and are saying you are one of the ones who pays attention to detail…get a link going for your name there. Might help prove your point if you would reveal who you are in that manner.

  91. We signed a contract along with an articles for agreement to purchase a property. We were leasing the property until the sellers could fix violations that the sellers garage had. We did the articles for agreement because part of our lease was to go to the purchase price, and we put a substantial amount of money down as earnest money. As time went on, the sellers called the village to do an inspection of other areas of the house, and there were many other violations (electrical etc) that they had to fix, they waited two weeks prior to the closing to do them. The issue of the garage was not addressed until a month before closing and they refused to comply with the village. They asked for a 30 day extension and we gave it to them, then 3 weeks went buy and they still have not done what they were to do to become compliant with the village and again asked for an extension of 30 days. We did not agree to this, and with our attorney he declared the contract and articles of agreement null and void. In the state of Illinois all parties have to sign off to return earnest money, now we are in court and this is taking way too long. Since they could not close on 2 occasions, isn’t there anyway that the sellers agent has to release the money.

  92. Tracey,

    I’m in vacation in L.A. this week, but I think you answered your own question, you just don’t like the answer. There are a few occasions when the return of Earnest Money is a unilateral option, meaning you don’t need both parties to agree to return the Earnest Money. But those are most often early in the process, within the first 7 to 10 days.

    Rarely does a contract go on for months without both parties needing to sign to release the Earnest Money…almost never after extensions and near closing can anyone just release the Earnest Money without the signatures of all parties.

    You are already doing everything you can. I’m confused by your use of “the village”. What “village” forces a seller to do these things before he can sell? Who is “the village”?

  93. On October of 2008, my wife and I decided to purchase a new manufactured home/land package from an individual seller and his agent. The closing date was March 31, 2009 or sooner and we were asked to put up $3000 of earnest money for this $160,000 deal.
    The verbal promise was made that we would be in our new home by January of ’09. Then we were told it would be the end of January, then it was the first of March, then it was the end of March. Then the closing date came and went without an extension either verbal or written. It is now going to be June of ’09 and there is still no house on the property or even a sign of a foundation! We finally asked to get out of the deal due to too many delays and confusion. Now the seller wants to keep the earnest money and is asking for even more for his troubles. I think he dropped the ball by not getting a closing date extension and besides, the property is not the pretty picture he painted at all. He thinks he has troubles, I am being pretty much evicted because of all the different notices that we had to give our present landlord! Now we have to find another house to buy or to rent before the end of June…..

  94. I agree with you. It would appear that the seller was in breach when he could not perform by the closing date. Take a picture of the site with a date stamp or bring witnesses to prove there is nothing to move to.

    I don’t know where you are, but you would be wise to start the process to get your Earnest Money back before a home appears on the site.

  95. A Business owner is approved for a loan, and buying a home.Closing date is set. Buyer finds out his company is not predicted to make the money for the next year as expected, and his tax liability will not be covered by his earnings. He notifies the lender, because he is afraid he will not be able to keep up the payments in 2010.Underwriter requests a statement from his business explaining the financial status etc…Letter giver to UW, and loan the unapproved. Sellers will not release earnest money of 10K!

    There is a financing contingency in the contract with no time frame. 3 day notice of written denial notification was done.

    Agent is a dual agent with her broker holding money in escrow. We are in Va. I understand the broker can not release the $ w/o the Seller’s signature. Dispute clause states it will go to mediation before litigation.

    Will they be forced to give us the earnest money back?

  96. How did the business owner learn this during a short escrow vs. before they made the offer? Seems a bit convenient given “the letter” comes from the business owner that creates the loan denial.

    A case could be made either way, so the mediator will look at the facts, more than you have provided here, and decide. Often they ask you to compromise. If the seller sells the house shortly at the same price, then perhaps the seller will simply release it.

    Hard to say on this one. Anybody’s guess, really. Best is to put yourself in the seller’s shoes. How long did they live thinking their home was sold? A few days? Did you cancel the day before closing. Both sides of the story need to come out, not just one side.

  97. My girlfriend and I put an offer on a home as the”buyer”. We wanted to be on the loan together, not just one of us on the loan.Together we do not qualify, however I qualify on it by myself. We don’t want the house if we can’t both be on the loan. Since WE are listed as the BUYER on the contract, and WE have a financing contingency, can we be held in default if we do not want the house with just me on the loan? I do qualify without her? The lender says we are in default and will get sued if we back out.

    The earnest money came out of her account, not mine. After we paid the earnest money the lender had her put my name on the account.We are not as worried about losing are earnest $ as we are getting sued by the broker.

  98. The above came out wrong. I HAVE been qualified without her on the financing, but we do not want to follow through with the deal if this is the only way to finance. They say I can put her on the title, but not the loan. The contract states ” buyer” must secure loan. So are “we” the buyer ?

  99. “The lender says we are in default and will get sued if we back out.”

    That’s an odd statement for a lender to make. Your contract will tell you the answer. There should be a “liquidated damages” clause as to whether the Earnest Money is the limit that anyone can come after you for damages. I’m assuming you are not local or I could tell you where to look.

    If your loan application is in both names, you should be able to press the lender for a written response to the application as made. They can’t force you to apply differently, and should produce the denial letter you need.

    You should go to an attorney with your contract regarding liquidated damages and the finance contingency. A simple letter from an attorney shouldn’t cost much and the attorney can get the denial letter and also send it to the Broker, being sure to comply with the terms of the finance contingency. Make sure you go to an attorney who specializes in minor real estate matters so it won’t cost much. One who is very familiar with the standard real estate contracts.

    I think what you are running into is people don’t understand why not? Why would you not want to buy the place for this reason? I think that is why you are getting the reaction that you are getting. They pull wives and husbands off the loan process very often, without anyone caring. I expect that you care so much…so much so that you no longer want the property as a result, is confusing and frustrating them. Still no reason for them to be that coercive, but I think that’s what is happening.

  100. I know the earnest money will come back into my hands, but coming up with the down payment is a little tight for a condo we want to buy (hooray FHA). If the offer is accepted and the earnest money comes back to us, does it go to the payment of the house or can we use it for the down payment like what we were depending on?

    Thanks 🙂

  101. Hi Kendall,

    The Earnest Money doesn’t “come back into your hands”. It comes back to “the table” and applied as a credit against your total cash needed to close.

    Let’s say you are paying $200,000 for a condo and your lender fees are $3,500 and other expenses $2,500 and downpayment is $7,000. If the seller is paying your closing costs of $6,000 and your Earnest Money is $2,500, then you need to bring the difference of $4,500.

    If you are paying your own closing costs then you need your closing costs of $6,000 plus the downpayment of $7,000 less the Earnest Money deposit.

    So yes, it can be used for downpayment…but don’t forget about the closing costs 🙂

    The Earnest Money is a credit at closing against the total monies you need to bring to closing, including the downpayment.

  102. i’m a house buyer and i was purchasing on this house but it didn’t went through so i ask my agent to get my deposit money back and it did came back. Then i told her that i woudn’t use her anymore and just want to come by to get my money back then she went mad and told me that i won’t able to get my money back, what should i do now beside taking her to court?

  103. Tammy,

    Call the Broker of the office your agent is with or walk into the office and ask to speak with someone about it. There is not enough detail here as to why it didn’t close, and whether or not you have a legal “out”. Also it doesn’t make sense that the money “came back” but you didn’t receive it. Perhaps the office broker or manager can sort it out better for you. If that doesn’t work you should see an attorney, but I can’t tell from what you have said if you should get your money back or not.

  104. I would appreciate any information anyone can give. Our home transaction has gone terribly wrong. We signed our closing papers with escrow on Tuesday and Wednesday morning our RE agent told that the seller had gone bankrupt and did not have legal right to sell the house. Then the agent told us we are still bound by contract until ten days past the closing date, till 2-27-10. Giving the seller time to get court approval to sell. We have also been told she is dangerously close to foreclosure as well. We checked out the house and a neighbor told us that she had left teenagers in the home unattended for a few weeks and they trashed the home. We no longer want this house because of the condition and the costs to repair it. When will this seller be considered to be in breach of contract and what remedy do we have? We would like to be free of this mess and recover our costs, earnest money, inspection fees, and appraisal fees.

  105. Sue,

    I think you need to see the house to determine what condition it is in and you need to see an attorney if you want more than your Earnest Money back or if you want to do something less than your contract calls for you to do. Your comment is entirely based on what other people are saying. If your contract grants an automatic 10 days after closing for the seller to perform, and the teenagers did not cause any real damage (everyone’s definition of “trashed” is different) the answer would be different.

    The average contract does not give 10 days, so yours may have been specific to this seller’s situation or the local contracts where you live may be different. You need to find or have the agent point out where in the contract it says you must give them 10 days, not simply rely on what someone “said”. You need to request a visual inspection of the property to determine if and to what extent repairs are needed, not rely on a neighbor’s verbal representation of the home’s interior condition.

    Consult an attorney immediately. Given you have already signed your papers at closing, if you already brought all of your funds to close to closing as well, this could close without your further consent. You likely have to do something to stop it and you could lose your Earnest Money if you do not do it correctly and within the contractual time limits. This is about your specific obligations under your specific contract. So bring that contract to an attorney ASAP and if possible, try to get in to the property today so that you can tell the attorney what the condition is beyond “the neighbor said they trashed it”.

  106. Ardell,

    I’m going under contract and the Seller is paying all closing costs. Will I be able to use my Earnest money as part of my Down payment.

  107. My wife has been trying to sell her condo, she had a offer, and the buyer put down earnest money. He decided to back out of the contract because he was worried about making the payments. The problem were having is that he is refusing to release the earnest money and the realtor is telling us it goes to the state and we have to take him to small claims court. Does this sound correct and if it is how long do we have to file a lawsuit in Illinois?

    • Tom

      I don’t know anything about Illinois, but that would be true here, except for the “goes to the State” part. Some states only allow escrow to hold the money for 30 days. At some point whomever is holding the escrow has to do something. If the Earnest Money is small, it ends up going to the lawyers hired to resolve the issue.

      How much is the Earnest Money? IF the buyer cancelled during a legal out phase, like inspection of the condo documents, it would be different than if he cancelled a few days before closing after all of his legal “outs” were closed.

      I’ve been to one of the small claims settlement processes. It’s pretty simply and not too expensive. It’s pretty easy for a buyer to get a letter of denial from a lender unless he is grossly over-qualified for the loan.


  109. Net,

    I agree with you on a personal level. I believe a contract to purchase = “I will buy your house IF I can get a mortgage” and the language of the contract should support that basic concept. That said, in 20 years I have not had that happen with a buyer client, so there is a lot of obligation on your part to be sure that you CAN get a mortgage when you “tie up” someone’s property. It sounds like maybe neither you are the seller had agents?

    Your contract may or may not have been stated that way, so I can’t tell you what happens next. A lot depends on what State you are in.

  110. I made an offer on property and the seller made a counter offer. I did not accept the counter offer so can I get my earnest money.. My agent and the seller agent are not canceling the contract.

  111. JJ,

    There must be something missing in that story, as there is no Earnest Money deposited unless you accepted the counter offer. There is no contract to cancel without mutual acceptance. Are you talking about a negotiation of the home inspection where you asked for something and the seller countered with something else?

    If, as you say, there was never an agreement in the first place…there is no contract and the Earnest Money is not deposited. Unless it was some minor & inconsequential initialing of a nuisance detail item or you are in a State that has some odd practices.

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