Is Your Earnest Money Protected By The Finance Contingency?


While the purpose of the Finance Contingency is to protect the buyer in the event they are not able to obtain a mortgage, more and more the buyer is not covered all the way to the day of closing.

In a perfect world, the buyer submits an offer with a Finance Contingency that runs through the day of closing.  If the buyer’s loan is rejected, the sale becomes null and void and the Earnest Money is returned to the buyer.  The seller puts his property back on the market and finds a different buyer.

Finance Contingency addendums are two pages long and much more complicated than the simple explanation above, and much more dangerous to the buyer than they often expect.  I have not met a buyer in 15 years who did not expect to get their Earnest Money returned if their loan is not approved.  I also have not had a buyer client in 15 years whose loan was not approved 🙂  

It is becoming common practice in the last few years for the seller to counter the offer by shortening the timeframe on the Finance Contingency.  Often this is deemed a minor date change, when in fact it is a major change for the buyer.  I have even seen buyer’s agents write offers with a 30 day escrow and a 15 day finance contingency because that is “common practice” :0 

If you have a 30 day escrow and a finance contingency that expires in 15 days, you are not likely covered if the loan is rejected on the 23rd day.  You are also not covered if you did not apply for your loan on time or if you did not submit the documents to the lender in a timely manner.

VERY IMPORTANT, you are also not covered if you do not have enough cash to close. 

I am hoping the attorneys here will have something to add, or will have something on their blog explaining this further.  In the meantime, suffice it to say that just because you have a Finance Contingency, that does not mean that you will automatically get your Earnest Money returned, if you can not close due to financing issues.

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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: cell: 206-910-1000

75 thoughts on “Is Your Earnest Money Protected By The Finance Contingency?

  1. Ardell

    You say “In the perfect world, the buyer submits an offer with a Finance Contingency that runs through the day of closing.” Who’s perfect world are you referring to? Certainly not the Seller’s world. The way that the NWMLS Financing Contingency is drafted, if the Seller fails to take action in some way related to that Contingency, the deal remains contingent all the way until closing, even when the contingency period “expires” prior to closing. I can tell you that many Seller’s go to closing thinking they have a firm deal when in fact it is still contingent and that some of those Sellers are VERY surprised when the Buyer’s financing falls through after the contingency period and the Buyer wants their earnest money back (and gets it!). I’m glad that you have never experienced that with one of your buyers but I have seen it multiple times.

    Under the NWMLS Form (the form most often used in Washington state), expiration of the stated “time period” only provides the Seller with the opportunity to force Buyer to waive the Financing Contingency. Yes, there is the opportunity to ask for a “letter of loan commitment” but it is all a preamble to Seller deciding whether they want to force Buyer to waive the contingency. Many listing agents do not re-engage the Seller at the expiration of this time period to discuss the merits of this action. While the Seller is deemed to know and understand the contract, I think it part of the listing agents job to sit down with the Seller, explain their options and let the Seller decide what to do. Some agents merely forget. Others, I think, don’t want to ‘rock the boat’ because they know that if the Seller forces the financing issue with the Buyer, the Buyer may walk and the agent must now find another buyer.


  2. Russ,

    You are correct that the focus of the post was directed toward the buyer, hence the Title “Is ‘YOUR’ Earnest Money Protected?”. “Your” referring to the buyer and the buyer’s Earnest Money considerations.

  3. Ardell, you don’t understand the financing contingency in the standard NWMLS form. The timeframe of the contingency has nothing to do with expiration of the contingency. In fact, buyers ARE protected by the financing contingency through the closing date (assuming that they satisfy all of the other conditions, such as having the agreed amount to put down, timely application, etc.). As explained by Russ, the timeframe relates to when the seller can force the buyer to either waive the contingency or face termination of the contract by the seller. By shortening the timeframe from 30 to 15 days, a seller simply shortens the time before which the seller can force the financing issue or terminate the contract. I encourage you to give a very close reading to paragraphs 2 and 3 of NWMLS Form 22A, which will confirm what Russ and I have said here.

    Your post points out the dangers of allowing real estate agents to engage in the limited practice of law. Despite the fact that you are an extremely experienced agent, you don’t understand the terms of one of the most common and important contingencies. Admittedly, the real estate market works efficiently by allowing agents to provide limited legal services (completing pre-printed forms prepared by attorneys). However, this efficiency comes at the cost of shortchanging the consumer, who engages in a complex and valuable legal transaction without the benefit of competent legal counsel. I note that this exchange here is a nice follow-up to our exchanges on my post A Closing Date without a Closing.

    Finally, several months ago I authored a post here on RCG regarding the financing contingency.


  4. Ardell

    My bad! I did not pay much attention to the title of your post and paid more attention to the post itself. Will do better next time.


  5. Craig, what I do or do not “understand” has nothing to do with posting a brief “warning” in a blog. I know you want all of the legal loose ends dealt with, but that is not the purpose of a blog, as I understand it.

    Giving the buyer consumer the “heads up” to not makes assumptions that they often make is the point.

    Your point that the seller “may not” invoke his right under the shortened time frame is clearly not good enough for my client’s protection…nor yours, I am sure. It’s a blog, Craig…not a legal brief.

    I don’t know why you keep saying that agents should not be agents. Clearly you know that we do this for a living and we are many…don’t you? Your point always seems to be that agents should step aside and let lawyers sell real estate or be involved in the contracts all of the time. Have you ever practiced in NY 🙂 Is that your wish, desire and point?

    Been there, done that, no thanks. Many problems in transactions that have five attorneys in a string…and an ice storm…and no Fed-Ex…but that’s another story, and a horror one at that! Agents move a lot faster than attorneys and with 10 minutes and three offers in already…we have to move fast at times.

    Can you stop scolding me please and comment? I would appreciate it.  Pointing to your more lengthy and legal post is appropriate.  Teilling me what I do and do not understand is not appropriate.  I made it very clear that it is a lenghty two page addendum and my post was not all inclusive of all of the facts…that will be in “the book”. :-).

  6. Ardell,

    “I made it very clear that it is a lenghty two page addendum and my post was not all inclusive of all of the facts…”

    This issue with your post was not that it did not include all of the facts, it was just plain wrong. Craig and I being the lawyer contributors for RCG, it would be wrong for us to sit back and let people read legal-related posts (from you or anyone else) and walk away with bad info. I hope you agree.


  7. I submitted an offer last night with the 30 day default on the mortgage contingency. Agent called (at 11:30 p.m.) and said he “wanted the mortgage contingency removed in 15 days”. In the final today he said “will your client accept removing the contingency in 20 days?” I said “you can put 20 on that line”.

    This is a normal negotiation. I know his putting 20 on that line does not mean what he thinks it means. That being said, it still seems to me that 30 is better than 20 and 20 is not a problem as long as you have the loan at the closing table. So far I always have a loan at the closing, but when I don’t, I will call one of you guys 🙂

    Now, from the buyer’s perspective, isn’t 30 still better than 15, especially if the seller gets a better offer as a backup and is looking for an excuse to flip into the backup?

  8. Yes, 30 is better than 15 because it gives the Buyer 15 more days in which the Buyer is in control of the deal, at least from a financing perspective. No matter how ancy (is that a word?) Seller gets, Seller is stuck until the period ends.

    By the way, what do you think the other agent thinks the 20 day period means?

  9. In some states, the contingency clause only covers the recipt of a “commitment letter” which is not the same as getting the loan. Commitment letters normally come with conditions, many of which are routine (appraisal) but some that are not. On new construction, these clauses are skewed toward the builder/developer.

    This post should be a notice to FSBOS and those in states that do not require an attorney for a real estate transaction— ALWAYS hire a real estate attorney. And not just any real estate attorney–use one who does primarilly real estate for the type of property or transaction you are invloved.

  10. 3 Cents, that raises an excellent question. How and when would a buyer or seller utilize the services of an attorney? I remember hearing that after the contract is all signed up, it is often too late.

    In South Jersey and Bucks County we used to add a 3 day attorney review clause, but most buyers just used it as an “out” clause and didn’t consult an atorney unless they had buyer remorse in the first 72 hours after the contract was signed.

    Most don’t consult an attorney until and unless there is a problem.

    Russ and Craig, how would someone utilize an attorney before they enter into a contract, given they find a house and write it up as soon as possible thereafter and often on a Saturday or Sunday? Many of the “blanks” are filled in differently depending on whether or not there are other offers, etc…and time is often constrained.

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  12. Ardell:

    My humble advice:

    Yes, hiring a lawyer after a contract is signed is too late.

    If you are under the gun you can sign anything so long as it says “subject to my attorney’s review and approval”

    Consult with an attorney even before you use a broker or realtor. The consult should be free. This should be standard for first time home buyers. An experienced real estate attorney will give you an overview of the process which will make you feel more comfortable. It will also provide you with an objective third party to answer questions and the source for second opinions for what brokers say.

    Brokers often give legal advice without realizing they are doing it. They are often right but not always. It’s always better to run it by an attorney. They are independent with no interest in the outcome. I have heard brokers use the term “lawyers are destroyers” for finding flaws in the deal.

    NEVER sign any document, much less a contract without an experienced real estate attorney looking it over first. DO NOT rely on anyone telling you it’s a STANDARD contract. You should know that standard does not mean fair, sensitive to your needs or set in stone. EVERYTHING is negotiable. Never be afraid to ASK. And thats another benefift of a lawyer. They can ask for you and they come off as the bad guy (and everyone expects bad things from an attorney) 🙂

    DO NOT wait until there is a problem. It may be too late to repair. The only value of an attorney then is to tell you “if you had only come to see me before you signed this”.

  13. FYI with my seller’s agent hat on, if we had three offers and one said, as you suggest “subject to my attorney’s review and approval”, that would not be considered a bonafide offer. We would reject it and look at the other two offers and pick from those two.

    Everything you say is good advice. But in practice it doesn’t work. Which is why most people do not use attorneys and why agents need to be the “be all end all” most of the time. Not signing a document means not getting the house, and most people want the house more than they want an attorney. Just my experience 🙂

  14. 3 Cents

    You indicated that Buyer’s should seek out legal counsel and that the legal consult should be free. Why free?


  15. To Russ:

    Why free? Because part of a lawyer’s public duty is to contribute some pro bono hours and what better way than to offer free initial consultations to prospective clients…you will get clients for life and be highly recommended. It’s not all about the benjamins Russ :-), as I’m sure you know.

    To Ardell: I cant disagree with your experience

    My advice was for buyers. Ideally, this is what you should do when you are making one of the biggest investments in your life. I stand by it—use a lawyer ALWAYS. An attorney can prevent issues from arising and help if something goes wrong. And lawyers cost is not prohibitive given the other costs you face (eg bank, title, taxes). Usually a real estate transaction is routine so no worries, but I prefer to be prepared for the exception. I will give you an example, though on somewhat of a tangent. When my wife was pregnant, we chose a hospital with a child intensive care unit over the one down the block which did not have it. why? because we’d rather be safe than sorry. Now I know you cant equate life with money but sometimes a life savings is invested in a real estate deal.

    Re: “subject to my atty’s review & approval”

    Again, from the buyer’s point of view and “if under the gun” you can sign anything with this language and in the light of rational thought see if it is a good deal. If you don’t have the 3 day window then I would not be pressured to sign w/o this escape language. ask Russ if he agrees. And yes, if there are others vying for the same property you do risk losing it.

  16. 3 Cents

    I agree that lawyers must contribute to the greater good, just like everyone in the business world. However, a lawyer’s time is all he or she has to give. I regularly spend time talking with folks for free (today over an hour) but I also am careful to limit that time to provide high level information. If that is what you are talking about, cool. However, many people get the impression that they can have a free hour of atty time in anticipation of a residential real estate deal. This belief has been furthered by litigators who advertise that they will meet with a prospective client in order to get a piece of litigation. Most litigation clients will spend thousands (or even tens of thousands) of dollars on attorney fees so an hour of time can be easily absorbed into the value of that client. Simple residential deals will probably max out at 1K so there is not the margin for a lot of free time.

    Regarding the atty review issue, there are certainly times when a buyer has to pull the trigger without attorney review. However, I have seen a lot of fabricated time pressure in normal markets. Many times, buyers who cave in to those time pressures end up regretting it, one way or the other.


  17. I have called attorneys in several times, though there was no “dispute” involved, let’s see:

    Once to represent me, the agent, in the transaction. There were three attorneys at closing and none represented the buyer or the seller, that was a fun one!

    I used to have an attorney I used frequently for my clients. He respected that he and I represented the client, not that he represented the client and I was the dumb bunny who was supposed to shut up and sit in the corner (Sorry, Craig…had to get that one in) 🙂

    I would like to have an attorney involved on every transaction and include that cost in the commission. I need one to handle some things missing in transactions here on the West Coast (CA included) because of the “escrow” process.

    I found one I like in Seattle that I like very much, but it would be better if I had one on the Eastside. I’m kind of fussy about my ancillary services, they have to respect the fact that I “represent” my client and am not “selling a house”.

    Hmmmm I can hire an attorney to represent me in every transaction and my client via me…hmmmm light bulbs going off.

  18. We are in agreement Russ. Certainly free consultations can be abused by prospective clients and in those instances an atty has to draw the line. I commend you for giving of your time.

    And yes, I agree that buyers who pull the trigger without atty review often end up shooting themselves in the foot. 🙂

  19. Is it too late to jump in again? Ardell, I don’t think you’re a “dumb bunny” who should “shut up and sit in the corner.” Rather, I think everyone — lawyers included — needs to recognize the limits of their knowledge and know when they should defer to someone else more knowledgable. When I pointed out that you did not understand the terms of the financing contingency, you responded as if I had insulted you. It was not meant to be an insult. There is nothing wrong with not understanding something — the old adage that “there is no such thing as a dumb question” holds true (my favorite adage when I was a high school teacher). However, there is something wrong with refusing to learn or refusing to recognize that your client needs the assistance of another professional. Russ can confirm that I regularly turn down prospective clients (and steer them his way) because their legal issues are outside of my current “comfort zone.” Finally, I recognize that both the attorney and the agent represent the client and bring different skill sets to the table — something I’ve said since I launched my web page in June of last year.

    As an aside, any attorney who represented both you and your client — and was paid by you out of the commission proceeds — would probably be violating the rules of attorney ethical conduct, as your interests differ from those of your client. If your client would benefit from legal counsel, then your client needs an attorney who will protect your client’s interests, regardless of your interests or anyone elses, and regardless of whether the transaction ever closes.

    As for whether a real estate transaction has time for an attorney’s review of a buyer’s offer: The clients could sit down, before they’ve found the dream home, and discuss with an attorney the possible terms and contingencies of the offer, referencing the MLS forms that will be used by the agent. In that manner, the client can understand the potential risks associated with forgoing contingencies in the hopes of creating the strongest offer possible and therefore can make an informed decision. I gladly perform such a service for a flat fee of $500. Not exactly free, 3 cents, but pretty reasonable given that the fee probably represents about .1% of the transactions value (and is 1/15 of the fee the buyer’s agent will probably earn). I do, after all, have to make a living.

    Sorry for the long post — I’ve got to keep a closer eye on these things…

  20. I have met Craig and the value proposition he provides for a $500 fee is well worth it, even for Buyers and Sellers who have an agent.


  21. Let’s think out of the box here, Craig.

    I would like to offer staging services with every listing and legal services with every sale. I fax the agreement to the attorney as soon as it is signed around the same as I send it to escrow and the lender. The attorney reviews it and is available during the transaction in the event I have any issues I need his assistance with addressing. If all goes well, as it usually does, then the attorney would attend the signing at escrow with me and my client.

    The attorney would represent me.

    Craig, why do you say my client’s interests are different than mine? Are YOUR client’s interests different than yours? If I hired you to represent me, it would be to insure that I represent my client to the best of BOTH of our abilities. We would have the same objective. To represent the buyer or seller well.

  22. To Craig

    If you charge $500 because you feel you need to (make a living), by all means do so- no one will argue that you did not earn it or that it is unreasonable by broker standards or otherwise. But once you have achieved some financial freedom , or not, try giving some free initial consultations and see how great that will make you feel, not to mention your prospective clients. Or try a free seminar or online chat. You might even discover that you will earn more money in the long run. Trust is born of charity.

  23. “VERY IMPORTANT, you are also not covered if you do not have enough cash to close. ”

    Could you go into depth on this in another article? As a clueless thirty-something buyer with just a few grand in the bank, and soon to be applying for a no money down loan, it’s quotes like these that scare the bejesus out of me. Nowhere can I find out information about actual costs. Hidden amounts here and there. Am I ready to buy? Aren’t I? Everybody is screaming at me to stop throwing a grand a month away on rent, but am I truly ready to buy a house?


  24. Steven, it would appear that your concern is somewhat immediate and deserves more than I can cover in a generic example. Since I have apparently scared you, I offer to answer any questions you may have if you email me at

    Costs vary from one person to the next and from one property to the next. But DON’T WORRY! People buy homes every day with almost no money. You just have to have the right agent, as the agent will build the cash needed into the offer. You will normally need about $1,800, and an agent who knows that you only have $1,800, and takes on the responsibility to find the rest.

    It’s kind of like worrying about the costs of college until you get your financial aid package 🙂 Given what you have said, you need to find an agent you trust to take this worry off your plate. You need an agent who will be responsible to calculate and include the costs in the offer.

    You need your Earnest Money Deposit (try $1,000), your home inspection fee (about $350) and sometimes your appraisal fee (let’s say $450). That’s $1,800. The rest, which could be anywhere from $3,000 to $10,000 depending on your particulars and the purchase price, should be built into the transaction and financed But the agent needs to know this and do this at time of offer, it can’t be added later.

    Please email me as I feel badly that I scared you. You can buy your first property, but don’t do it until you know what your costs will be, how the costs will be paid for and also, what your monthly payment is going to be. Know your payment BEFORE you make an offer.

  25. Steven,

    As Ardell said, you bring up some interesting issues that are definitely hard to answer because the right answer depends on a very specific set of circumstances (yours!). I guess I shouldn’t be surprised that Ardell is willing to take on finding a loan for her clients and I’m sure she does an excellent job at it. However, with most agents, I’d be skeptical of the mortgage deals that they set-up since that is not necessarily their area of expertise (or an area where they necessarily have your best interests in mind).

    Last March, I wrote some tips on where to find a mortgage broker (both online and offline). If you have good credit, which is sounds like you might, then definitely get a quote from both a mortgage broker and an online bank. For us, the online bank was able to beat a highly-recommended mortgage broker by almost a quarter of a point (which has saved us quite a bit of money over the last few years!).

  26. Speaking of great mortgage deals, First Tech Credit Union in Bellevue had one, some income restrictions apply, that a buyer client of mine used recently. It was a 3 year fixed at 4.75% and total lender costs were only $514. Total closing costs on a $300,000 purchase were only $3,000. I think you also have to work for a list of companies to use First Tech, like Microsoft, Amazon, Expedia Call them to be sure.

    Dustin, the reason the agent must be involved, is the agent needs to write the amount towards closing costs into the offer. Not a good time to play your cards too close to your chest, leaving the agent out of the equation. That could lead to the situation that scared Steven in the first place, not enough cash to close. The agent needs to know how much money you have and how much money you need, before the offer is written. The lender does not represent the buyer’s interests, the buyer agent represents the buyer’s interests.

    Both you and Craig have brought up the fact that the buyer agent does not represent the buyer’s best interest. That’s ludicrous That is what they DO. If a buyer feels for one second that the agent is just trying to sell them something and is not representing their best interest, they need to fire that agent and get a better one Pronto!

    The answer is not for them to distrust the agent. The answer is for them to fire any agent they do not trust and hire one that they DO trust. The agent also needs to pay close attention near the end that the closing cost credit does not exceed the amount the lender will allow on the HUD 1. That extra money will go to the seller if the buyer agent is not paying attention. According to escrow, this happens all too often.

  27. Excellent point Ardell…

    It think it is in my nature to assume people are trying to use me until I am proven otherwise… 😉 When I purchased my home a few years ago, I really didn’t have time to develop a level of trust with the agent. It is quite possible that the agent had my best interests in mind throughout the entire process (I was given no reason to think otherwise), but I never got to the point of trusting her over my own instincts.

    But you are right… If you can’t trust your real estate agent, find a new one!

  28. 3 cents — come by my free seminar offered the fourth Thursday of every month, 7:30-8:30 pm, at the Phinney Neighborhood Center in Seattle.

    Ardell, one of an attorney’s cardinal rules is to avoid any conflict of interest in representing a client. In most circumstances, your interests would be aligned with those of a client. However, one can imagine any number of situations where your interests differ. For example, what if the client learns at the last minute of an expensive defect in the house? It may no longer be in the client’s best interest to close. However, by that point you will have invested a month’s work or so. You want to be paid, but that will happen only when the transaction closes. In that situation, I would not be comfortable representing both you and your client — your interests differ. Or what if you realize that, through an honest mistake, you breached the standard of care in regards to your representation of your client? How would the attorney handle that situation? Should he help you to minimize the potential harm to you? Or should he inform the client so that the client can make an informed decision about his potential legal remedies. You may be able to find an attorney willing to represent both you and your client, but I believe such representation would be difficult if not impossible given an attorney’s obligation to be the client’s zealous advocate.

    As for those situations where my interests in fact differ from my client’s, I have an obligation to withdraw from representation. See Attorney Rule of Professional Conduct 1.7. Luckily, I have not yet been placed in that situation. However, like any good attorney, I am constantly on the look-out for potential conflicts of interest, and I will certainly take whatever actions are necesssary to avoid or eliminate such conflicts.

  29. Craig,

    I didn’t know you offered a monthly seminar… That’s pretty cool and sounds like something a lot of home owners (and/or future home owners) could benefit from. Remind me a few days before your next seminar and I’d be happy to post a blog entry about it!

  30. That you would even suggest that I might want to get paid more than I want to represent my client well, means you would not be the right attorney for me or my client. It is also insulting that you would even suggest that I might be more concerned about my commission than the defect in the property.

    I have stood people up right at the closing table after many hours and weeks of work and said “We are not signing today!” and found a legal out for them at the 12th hour.

    Craig, I work the same as you. I represent my client the same as you do. When YOU breach your level of care, the client needs to seek separate remedies. We are no different you and I. We represent people for a living.

    I am curious as to why you do not seem to respect the role of the agent in the transaction? I do not sell houses for a living. I represent people for a living, same as you.

    This dialogue should point out to people that you should not hire an agent you do not trust to represent your best interests. It’s a sad day when we assume that those you hire to help you in the purchase or sale of your most valuable asset, are all in it for themselves. Take the time to find the best agent and not just the best house.

    Clearly there are agents who only want to make money, just as there are attorneys out there who only want to make money. We should not base our actions on the lowest common denominator of either of our fields.

  31. Ardell, we agree on many issues: 1) There are good and bad agents and lawyers — not to mention plumbers, mechanics, accountants, doctors, etc.; 2) a client should be comfortable with and trust the person hired by the client for a particular task — whether agent, lawyer plumber, etc.; and 3) some people will stretch the definitions of ethical conduct — even beyond the breaking point — in order to make more money.

    As for my hypotheticals, those were the first two that popped into my mind regarding agents in general. I believe (based on what I know, i.e. your posts and Dustin’s faith in your character — I’ve not had the opportunity to meet or work with you) that the first hypothetical does not apply to you. I apologize for implying otherwise.

    However, my second hypothetical certainly could apply to you, or me, or any other human. What would I do if I thought my malpractice jeopardized the interests of my client? I suspect I would need to withdraw based on a conflict of interest. Regardless, an attorney could not represent me and my client regarding my representation, at least based on my understanding of an attorney’s ethical obligations. The same is true for any other professional (agent, doctor, accountant, even plumber, mechanic, etc.) given the potential for a conflict of interest. RPC 1.7 (b) prohibits representation where there MAY BE a conflict of interest.

    Ironically, I misunderstood your position — I now see that the lawyer represents ONLY YOU but reviews the transaction involving the client. You’re right, your interests and those of your client are probably identical. However, per RPC 4.3(a), Dealing with Unrepresented Persons, the attorney would need to insure that the client recognized that the attorney did not represent the client and that the attorney would not be protecting the client’s interests, except to the extent that they were identical with the agent’s interests. Admittedly, that would probably be a perfect match, but something could develop during the course of the transaction that would render the agent’s interests adverse to those of the client — malpractice being just one example. You’ve got 15 years of experience — I’m sure you can imagine a situation where your interests might diverge from those of the client at some point. With such an understanding on the part of the client, the “Team DellaLoggia” plan would probably be consistent with the attorney Rules of Professional Conduct — again, at least based on my understanding.

    Finally, nice rhetorical touch, asking me why I “do not seem to respect the role of the agent in the transaction.” What’s next — asking me when I stopped kicking my dog? I do respect the role of the agent — why can’t you respect the different skills of an attorney and the different rules of ethical conduct that apply? Certainly you recognize that an agent’s ethical code (in the professional sense) differs significantly from that of a lawyer. After all, an agent can represent both the buyer and the seller, even though they clearly have adverse interests in the transaction. An attorney could not. There is room in any transaction for both an agent and a lawyer, although I continue to believe that the client, who is after all buying or selling a very large asset, is the person who needs the legal representation, including the specific duty of loyalty that flows to the client.

  32. So when DID you stop kicking your dog? LOL

    No, I do not recognize that an agent’s role differs significantly from that of a lawyer. Nor do my lawyer friends suggest that their role with their clients is significantly different from my role with my clients.

    I have represented people in a fiduciary capacity for 35 years, first as a trust and investment officer for 20 years and 15, soon to be 16, as a real estate agent. Russ tells me that for some reason, here in Washington, maybe I am not held to that standard. But after 35 years, I don’t think I know how to downgrade 🙂

    BTW you didn’t misunderstand my position, I switched it while trying to gain the upper hand…I am a negotiator after all. I like jousting, take no offense. We are getting to know each other better with each squirmish. I’m an east coaster, we like all of the cards out on the table where everyone can see them.

    Give me the benefit of the doubt, Craig. Any agent who has been around as long as I have without a lawsuit can’t be all that bad 🙂

  33. Ardell,

    I think Craig’s point was that the ethical duties of lawyers are far more stringent than those imposed on real estate agents. You do see that difference, don’t you? That is not to say, however, that the role of the agent is somehow lesser than the lawyer. Both can add value and both need to respect their different roles.


  34. Seems to me that more agents get sued for not representing their clients well, than lawyers do. I would say that makes their role at least as stringent.

    Can we compare doctors and lawyers and indian chiefs now? A lender does not represent me. A plumber does not represent me. A lawyer does and a real estate agent does represent the person.

    “Relationships between Licensees and the Public. States that a
    licensee who works with a buyer…represents that buyer…”

    99% of the time the only person who represents the buyer or the seller in a real estate transaction is the licensee with no attorney involved. Maybe most people don’t expect that, seems like lawyers don’t expect it, but I think consumers need and deserve it.

    I have never worked in a state that did not require me to work in a fiduciary capacity. Why was the role downgraded here in Washington, Russ? What does “represent” mean in the Law quoted above if it does not mean that I should treat consumers as “clients” vs “customers”?

    Regardless, you guys are not going to get me to commit to a lower standard of care, so let’s change the subject.

  35. Ardell

    Not sure why you are taking this personally. Never intended as such. If you want to provide a higher standard of care and ethics than the law or the the REALTOR Code would require, that is wonderful. My comments were based on the industries at large and there is no way to argue that the standards applied to each are different.

    Also, Washington is not unlike most states that have eliminated common law fiduciary duties (which would have NEVER allowed dual agency) and replaced them with statutory agency duties which far better serve the interests of the brokerage world. Imagine a world where a brokerage company could not have agents sell one of the companies listings. That would happen under common law agency and is clearly unworkable in today’s world of RE brokerage.


  36. Craig says: “Ardell, you don’t understand” and “‘You’ want to be paid”.

    hmmm, looks personal to me.

    I do not take your comments personally at all Russ, because they aren’t personal. My frustration lies in the fact that the answer cannot be that most agents can’t be held responsible. Too many people depend on the agent to be knowledgeable and responsible, and frankly, if my standards aren’t good enough for Craig…God help us. Mine are clearly higher than most.

    It bothers me that Craig seems to want nothing less than an attorney to be involved in every sale, because frankly, most people can’t afford the costs as it is, and adding an attorney fee isn’t often practical. Nor does the timeframe of a standard transaction allow for an attorney to be consulted at every turn.

    So when I try to find a way to incorporate that fee into the existing consumer cost, and he still can find a practical response, I get frustrated. I am a “get real” kind of person. There are many wonderful, yet impractical ways, to approach this issue. I like to stay in the realm of practical on an everyday basis for most people.

    I am very familiar with the “common law” arguments and Dual Agency considerations, though clearly many states have had, and some still do have, the combination of fiduciary duties and Dual Agency. But that is a discussion for attorneys and EBAs LOL

    The agent must be held to the standard of care that people NEED. I don’t care whether you call that fiduciary or statutory, as long as it covers the consumer’s butt most of the time. I get upset for the consumer and agents thinking they sell houses and put “getting paid” above representing the person well.

    As long as Craig says “most or many agents” instead of “you” meaning “you, Ardell”, we can agree that it is not personal. Until then, I am the dog that he is kicking.

  37. Wow — for an East Coaster, you are remarkably thin skinned, Ardell. You’ve definitely lost your edge. 😉 Moreover, you apparently did not read the second paragraph of my previous post — it may be worth revisiting, just to give you a little peace of mind.

    Just to be clear: Many, and perhaps most agents — BUT NOT YOU, ARDELL –are as concerned about their own bottom line as they are about serving their clients. While Gordon Gekko was a little off with “Greed is good,” humans are driven by self interest. This dynamic is seriously exacerbated by the fee structure by which most agents are paid — no closing, no compensation. Ironically, the latest testimonial on my web page addresses this very issue. Regardless, the system works pretty well. People should just be aware of the realities.

    As for bundling legal representation with agent services — sorry, Ardell, I don’t make the rules and I can’t change them — besides I think they’re pretty good regardless, in part because of the above. I was simply pointing out to you that your proposed business model is inconsistent with the rules as they exist.

    Finally, as for the costs associated with hiring an attorney: if a buyer or seller cannot afford another $500 for an attorney (my flat fee for a client with an agent), when they’re spending perhaps one thousand times that on the biggest asset they may ever own in a legal transaction — well, they’re probably stretched too thin anyway and shouldn’t buy the home.

  38. I think if I hadn’t had 20 years of being a fiduciary on a salaried basis before real estate, I probably would “blend” better. It is very difficult, especially on a high sale price, to put my interests behind me. I don’t suggest in any way that it is easy to do. My stomach sinks just like everyone else’s. I just believe in that old “A professional acts as he “must” not as he “feels”.

    I think you are right that I could not hire an attorney to represent my client. That would be like a seller hiring a home inspector to inspect the house.

    I don’t think thin skinned people can hold their own with two attorneys in the room playing tag team 🙂 Your apology in Paragraph two of 31. did not go unnoticed. But I like the all CAPS even better. No worries Craig, just two professionals talking on a flat screen.

  39. Craig -re Free seminar

    Kudos to you. Now you are the type of attorney I am talking about. You do what lawyers are meant to do–serve the public good thru pro bono work. Your charity goes a long way to dispelling the notion that most attys are money hungry blowhards. Keep it up craig and much success and happiness to you.

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  41. We are in a real bind and can’t get are earnest money back from the sellers. The house we were going to buy needed repairs and we went back and forth with the sellers to fix them. They said in a addendum that some of the repairs were done so we said we would take $5,000 for the rest of the repairs and we would fix them. The addendum was signed by both seller and buyer. But when we had the walk through none of the little repairs had been done. Are lender wanted us to take the word repairs out of the contact but we wouldn’t do it so are loan fell through. We tried to get are earnest money back from the sellers but they are deputing us.
    We can’t afford a lawyer and no one we have spoken to can give us any clear cut answers on what to do and how to retreive are money. Thanks for your time

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  43. I wrote a general article regarding the word “repairs” being in an addendum. On what basis are you seeking the Earnest Money returned? The Finance Contingency or because the small repairs werent’ completed? Is there an agent for the buyer and an agent for the seller? You do not mention the word agent or Broker. Who wrote the addendum that caused the sale to fail, and who has the Earnest Money?

  44. The basis for my money being returned is because the addendum that was written previously from the sellers agent signed by the sellers stated that all small repairs were completed ( but they were not) then because we thought they were we agreed to take $5000.00 for the bigger repairs and by us signing that addendum all contingencies were removed. The buyer (me) and the sellers both had agents. Now because they refuse to give us the earnest money back we are going into mediation. I was told that they don’t have to show up for mediation either. How then do we get are earnest money back??

  45. I would suggest a meeting with your buyer’s agent and the broker of that firm. They might be able to get their attorney to advise if you have a right to the Earnest Money. Having your own attorney would be better, as the addendum as written could be seen as the reason why the lender did not fund.

    Small repairs are not necessarily a legal reason not to proceed with the sale. If you absolutely cannot afford an attorney, maybe there is a reduced fee attorney or no cost attorney or check with the City your are in, and they may have a public resource you can use.

    You didn’t have a “finance contingency”? Seems the sale didn’t close because it did not fund, and could be a finance contingency issue. But the small repairs issue is likely not enough to cancel.

    The person holding the escrow cannot release it to you or to the seller without a clear resolution. Each state is different. What state are you in? Does your agent think you should lose your earnest money? If yes, why?

  46. Ardell
    I am in Las Vegas NV and right now my agent isn’t saying much to me. She said she would be at mediation for support. Can I ask you one more question? When the sellers agent put in the addendum “all continence will be removed” if we accept the $5000.00, does that mean the finance contingency was removed also?? We were under the impression that it was for repairs only because we went back and forth so many time over the repairs?? I really do appreciate all you input.

  47. Denise,

    Can you define these small repairs and why you let the whole purchase and sale fall apart over them? They sound minor from your original question. Did you just get angry and decide you didn’t want the house? Sounds like you could still have gotten the $5,000 if you took the two words “for repairs” out of the addendum.

  48. Ardell,
    The deal on this house was a problem from the beginning. Briefly, after the inspection the inspector found the roof, pool filter leaking and many other repair inside the house that needed repair. We were paying top dollar for the house and we felt that everything should be fixed. Every time we would do an addendum the sellers would come back with something taken away and there was so much back and forth and we became so stressed out. It was a horrible experience. Right before we were supposed to close the sellers took all the pool equipment and acted like it was never there in the first place. The sellers agent made up some excuse to are agent and she said she would have the equipment returned. The day of closing when they said all the repairs were going to be done they turned off the electricity. The sellers never cooperated with us and it actually seemed to me that they didn’t want this sale very badly.
    So again I ask you how do we get are earnest money back? Is it wise to give the sellers some of the money and be done with this mess? Does a financial contingency remain in effect if the last addendum says “we will credit the buyers $5000.00 at the close of escrow and at that time all contingency will be removed”?
    You have help me tremendously.

  49. Denise,

    There are two ways to look at this. One is that it was totally within your power to close, and that by refusing to change one word in the addendum, you caused the sale to fail at the very last second. In that scenario, the seller would be entitled to keep the Earnest Money.

    The other is…some other way an attorney might be able to cook up.

    You had a legal out after the inspection, you didn’t take it. You had an opportunty to look and see if the other stuff was fixed before you signed the addendum agreeing to the $5,000 for the balance, but you waited until the final walk through.

    The purpose of the Earnest Money is so that the buyer understands they will lose it. Also for the seller to get it, if their property is off market for a long time, to help compensate them for losing the momentum of the season and the “out the gate” synergy.

    When you decided not to take the word “repairs” out, causing the sale to go south, you were supposed to weigh that against losing $5,000, if you did so. In other words, you should have said to yourself, “Self, I’d rather lose $5,000 than proceed with this sale!”

    The most telling sentence is “We were paying top dollar for the house and we FELT everything sould be fixed”. That is a fairly typical “day after” buyer remorse. Was it a multiple offer situation? Why DID you agree to pay a price at which you were obviously not happy?

    I can’t answer the question “how do we get our Earnest Money back”, because if I was the mediator, based on what you have said so far, I’d be giving the Earnest Money to the seller.

    Paying top dollar does not change the condition of the property, nor does it change how the seller responds to condition issues. What you are saying is, if I were paying $25,000 less, I probably would have closed. Price, and how you feel about that price, is not a relevant factor.

    I’m pretty sure that the seller will end up selling the property for more than $5,000 less than what you were “willing” not, to pay. Is it still for sale? Do you think their real damages will be less than $5,000? What if their damages are $15,000 because they end up selling it for $15,000 less, plus carrying the costs of owning it for another month or many months?

    All that said, I DO think an attorney can do something here, even if it is simply to hold the Brokers liable, and not the seller or the buyer. The Brokers wrote and accepted an addendum that caused the sale to fail. Mediation will never hold the Brokers liable…I don’t think. And yet that may be your only out here.

    Even if the finance contingency was in place, sounds like the lender would have funded if you agreed to strike one word…so still falls on your willful act to negate the sale.

  50. Ardell,
    Wow I never looked at it the way you have described it but I guess there are two sides to every story! But unfortunately your scenario was not at all how it happened. I loved the house and at one point was very excited to move into the property. But as the negotiation process unfolded things just didn’t seem ethical or legal to me and towards the end of this dragged out ordeal I became concerned with everything and how it was being handled.
    I ask you why would I have to go check if “repairs” were completed when I had an addendum that said they were. Is it actually my reasonability to have to check to see if they did what they said they did?? Buyers should have some right shouldn’t they??
    Yes we were paying a good price for the house but we thought it was worth it but as time passed on we believe they didn’t hold up to their end of the deal and that is when all the trouble started. Why in the world would I change the contact at the very last minute or why should I have to? Why didn’t they just do what they said they were going to do? I started to feel I was getting strong armed into a deal and that didn’t rest easy with me.
    Yes the house is back on the market and they have lowered their asking price. The house only appraised for $4000.00 dollars more then what we were going to pay for it. It seems only fair that the sellers would try their hardest to make the buyers happy and not squabble over a few repairs and just go do what they said they would do.
    I’m a pretty fair person and have very good judgment and I believe that the deal went bad because of the seller’s dominant realtor that thought she could control the whole deal. As far as the earnest money being returned to us, well I positively think it should because they did not fulfill their agreement to us and that has to account for something??
    Thanks for your opinion and input in this matter. I will let you know how it all turns out.
    Have a nice day!!

  51. Denise,

    It was very hard for me to write that, but I didn’t think I would be doing you any favors not to show you the “agent” side, because possibly the agents would see it the way I do. Not having the word “repairs” in the addendum was how it should have been written in the first place, and taking the word out to get the loan and close is done all of the time. The only unique thing about your scenario is that you refused.

    As to what the seller didn’t do, that issue came up here in RCG before somewhere. You close, and then you sue them in small claims court for whatever you feel was unsatisfactory. You still didn’t tell me where they did not fulfill their agreement. What specifically in the contract did they not fulfill? Were the small repairs detailed in the contract?, and if so what were they and which were not done? Was the pool equipment in the contract specifically? What total dollar amount would you but on the seller’s breach of the contract?

    For instance, if the contract says the seller will install a GFI which is a minor cost item, and they don’t do it, that does not necessarily constitute a breach large enough to cancel the contract. You close and then you sue them in small claims court. Usually the agent just pays for it.

    It seems to me that you are thinking that taking out the word repair meant you were taking away a request for repairs. As for checking them earlier than the day of closing, I’m sure if I were asking my buyer to sign an addendum that said repairs were done, I would look to see if they were done before the buyer signed it.

    I do think there was a communication breach somewhere, which is why when I feel the agent for the other party is not representing the facts properly, I do not rest until the matter is resolved. Often I get an unsatisfactory answer from another agent and I keep sending them back for a different answer, or I call their broker or I arrange for a meeting with the buyer and seller to be sure

    I know this was a bad situtation for you, and I’m not trying to make a bad situation worse. Just trying to make sure that before you get in front of someone who has the power to give you the Earnest Money or not, that you are looking at the issue the way that they will be. I hope that turns out to be helpful in some way.

  52. Denise,

    Keep trying to convince me that you have a legal out in the contract due to the seller’s breach. If you can convince me…you will be ready for the mediator.

  53. Ardell,
    OK that sounds fair! Just a note, I do understand where you are coming from and I do appreciate giving me the “other side”. This is definitely to my advantage.
    I will get back with you later in the day!

  54. Sometimes all we agents can do is help people push the emotions aside, and look at things in a way that will be more productive. Sometimes that is all they need to be successful in their goal.

  55. The seller breached their contact because simply they did not do what they said they had already done. Can you lie in a contract?? Isn’t that enough to close a deal down whether it’s over repairs or over something more serious. When you can’t trust the “other side” and they breach their contract either in a small or big way I believe that is grounds to shut a deal down.
    Buyers have to be protected by a binding contact and if they are not what good is the addendum?
    As far as we are concerned they blew this deal for themselves or their realtor did, which one I don’t know.
    And as for having to change the word repair so that the loan would go through it seems to me that it is my choice and if I refuse to do that then a financial contingency should kick in and my money should be returned.
    With all the emotion removed the bare facts are they did not fulfill their end of the agreement and are loan did not go through. End of the story!

  56. If there are a few minor repairs left to be completed come closing day, the normal remedy would be a credit, or a handyman rushed in at the 12th hour to complete the repairs. Worse case scenario: Closing postponed a day while the repairs are being completed. Usually the agent for the buyer or seller can handle one of the other pretty quickly. But only if the seller signed a list of repairs to be completed, and that list was part of the written contract.

    I believe all contingencies were removed, in writing, signed by both parties, before the sale failed.

    I still think a lawyer could at least write a statement for you to bring to the mediation, if you can’t afford to hire one to attend. A lawyer could help you find a viable reason for the monies to be returned and put it in writing.

    Mediation alone often will split the difference and ask you to each walk away with $2,500.

    Good luck. Many sellers just give the money back so they can “move on”. It could go that way too.

    No winners in this one. Seller is selling for less; you have a bad situation to deal with. I always blame the agents for not resolving issues and letting them get this bad. Consumers need someone to watch their back. Doesn’t seem anyone had the backs covered in this one. Very sad. Best of luck.

  57. This thread reminded me of a question I wanted to put out there for the RCG Nation to address. If my buyer bails after the seller and buyer can’t come to terms on the 35B (all within the contracted timelines), the contract states that the deal is dead, and the buyer’s escrow money is to be returned.

    However, I also heard that until a rescission is properly completed and sent to escrow instructing that the ernest money be returned, it is in violation of Federal law to push the property back to active status.

    Has anyone heard of this? Just curious.

  58. Can’ be Eric. If the Earnest Money is in dispute, the seller can still put their property back on market. But I have seen some switch escrow companies for the second escrow.

    You can’t force a buyer and seller to agree on the disposition of the Earnest Money and you can’t make a seller keep his property off market in the meantime.

    But that’s common sense, let’s see what Russ says 🙂 In CA most agents tell sellers they have to give the Earnest Money back to the buyer to get their property back on market, but that’s mostly to “be done” with the whole thing. Kind of the lazy man’s out, I think.

  59. It is highly unlikely that any broker, or escrow holder, will ever automatically hand over one person’s money (buyer’s) over to another person (seller). Generally that would require the signature of both parties instructing the escrow holder to do that, or the intercedence of a third party as provided under state Law (interpleader action).

    If a buyer cancels on a legal out clause, I have seen the money returned without the seller’s signature. But I have not seen a seller keep the buyer’s money without the buyer agreeing to that in writing.

    If the buyer performed as provided in the contract up to the end and did not show up to sign the final paperwork. If the final paperwork included the loan papers arriving at escrow, the buyer is likely out of legal excuses at that point.

    I have had only one situation where no one showed up at the closing due to an ice storm. Fed Ex did not deliver the loan papers and no one showed. The closing took place on the next business day without penalty.

    Who is holding the Earnest Money? What have they told you will happen next?

  60. what do you do when the sellers attorney is holding earnest money and the buyer and seller have agreed to release the money to the buyer and the attorney refuses to release the money anyway?

  61. If the parties mutually rescinded the transaction and the provision allows for EM to be refunded to the buyer (you), then you should get your EM back soon. If not, call your attorney.

  62. Tim,

    Was wondering if the attorney might get paid if escrow doesn’t proceed, unlike Title and Escrow Companies. Maybe the attorney is holding it until he gets paid? I don’t know any attornies who work for free 🙂

  63. Russ and Craig, I just want to say that I really appreciate your comments within the large number of responses to this post. I agree with all of your comments and I frequently disagree with Ardell and as I began reading this long series of responses I found myself thinking all the same things that you were saying in your posts. Many agents do not understand the financing contingency form and this was very apparent last summer when the new 22A form came out and the NWMLS was doing mass trainings to agents. Russ, I think you taught the class I attended – I was very vocal with my questions about the forms and making sure people understood timelines, etc.

    Great work and thanks for clarifying some very important points. Maybe it’s worth another blog post to discuss why some agents seem to feel that they are diametrically opposed to attorneys when it comes to real estate transactions. I constantly hear people say “if an attorney gets involved this deal is dead” or “lawyers kill deals.” I have yet to experience it and I work with attorneys frequently on behalf of my clients – and their accountants/CPA, financial advisors, insurance agents, and more. We have to be able to coordinate a large number of people to make sure our client’s best interests are being represented and that often means that we, as the agent, aren’t the center of the world – but we can be the center of the effort and we can help make it be successful.

    Keep up the great posts!

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  65. I have a contract, dated Nov 29, 2006. It has a Financing contingency:
    This contract is contingent on Buyer qualifying for and obtaining the “financing” below by 30 days from Eff.Date.
    Buyer will apply for financing within 5 days and will timely provide any and all credit, employment, financial, and other information required by lender. Either party may cancel this contract if 1) Buyer, after using diligence and good faith, cannot obtain the Financing within the Financing Period or cannot meet the terms of the commitment by the Closing date.

    At this point, after 3 extensions signed by Seller and Buyer, buyer was unable to obtain financing. We tried several banks not just one and they all came back with several obstacles, one of them being that the condo is a non-warrantable condo.

    The seller is disputing the deposit based on the fact that he did not receive notice in writing of failure to obtain financing, prior to the last extension date.
    Last extension date was Feb 2, 2007. I have a letter of denial dating Feb 1st but it wasn’t actually sent to me until Feb 7th and I then sent copy to Seller on Feb 9th.
    He is basing his dispute on that mere fact that enough time was given, 2 extensions were given, and we failed to provide written notice of financing denial.

    However, I do not see anywhere in that Financing clause, that it states written notice must be given. It simply says we have to demonstrate good faith and provide all information to the lender, which we did.

    Can the seller get this full deposit because he did not see a copy of that denial letter prior to Feb 2nd?

  66. Carolina,

    I’ll leave the legal issues regarding this date that date to the lawyers. But let’s look at the practical aspects.

    1) You are supposed to know you can get the financing before you make an offer, and before the property is taken off the market. The finance contingency is to cover unforseeable events, like loss of job. The home is not supposed to be off market while you figure out if you are “financeable”. Time off market is a great seller disservice, it assumes the buyer has first pre-determined that they can get a loan, on that place, at least 98% sure. It’s not a “let’s tie it up and figure out whether or not we can actually buy it later” proposition.

    2) If it is the property itself that makes it not financeable, then the only proof of that is that no other unit could be sold with financing, and not that you have a letter from the lender saying your loan was denied.

    Some problem complexes (like co-ops) need the buyer to finance with one of the company’s willing to finance, and not necessarily a lender of choice. Even new construction works that way sometimes. Again, I’m dealing with practical aspects, and not pure legal aspects.

    If you were 100% sure you could get a loan, and still can, but not on THIS place. If it is truly the seller’s problem in that the property can’t be financed and not the person, then clearly you can get your Earnest Money back, regardless of the legal issues.

    But if anyone financed in there in the last six months, it will be pretty hard for you to hang your hat on the defense that the property is not financeable.

    Extension after extention, more time off market, consider the seller’s loss here. How long was his property off market? If it is all about his property being the problem, and not you at all, well yes, he should take the full disadvantage. But if it is only you who can’t get a loan, then why should the seller suffer with no compensation?

    Think about “Who should get the Earnest Money?” Who is the damaged party? Who caused the damage? It is not about CAN you keep it, but SHOULD you keep it, sometimes.

    Now go ask the lawyers if you can keep it whether you deserve to keep it or not.

  67. I have a situation with earnest money in the state of Wisconsin. We have a home for sale there and a young couple made an offer to purchase, which we accepted. They gave the realtor $500.00 earnest money with the contingency that their loan is approved. Before the loan was approved the women quit her job, supposedly because of sexual harrassment. The loan was denied because she was not working. The realtor says she should get her money back because the loan was denied. We contend that the loan was denied because of lack of employment and feel the money should be given to us. The property has been in limbo for quite some time and the realtor doesn’t seem to be showing it at all. The realtor claims by Wisconsin state law she can not release the earnest money unless all parties agree. She also told me that the earnest money had to be held by her in esgrow until all parties agreed, no matter how long it took. Can anyone give me some advice concerning this transaction. Thank You in Advance

  68. Robert,

    First my opinion. Release her Earnest Money. You clearly wouldn’t expect the woman to stay under those circumstances, would you?

    Next, in any State I know (Wisconsin not being one of them) the statements are true. No money can be released without the signatures of both the buyer and the seller by a real estate office or escrow holder.

    The money is not held indefinitely. There is a hearing or small claims action or some intercedence at some mandated time in each state. Usually that is called an Interpleader action, where a third part tells the escrow holder how to release the money. That then over-rides the buyer and or seller’s opinions.

    If the paperwork is clear, then there may not be a hearing. If the paperwork is not clear and it is gray, then there would be a hearing of some kind. Each State will have a maximum time the money can sit idle in the escrow before the request for interpleader is due. The hearing is then sometime after that. Usually it’s within 30 days or so of knowing both parties won’t release voluntarily and the hearin is within 30 to 60 days of that.

    If a buyer voluntarily quits their job and then is denied the loan, you would like be correct. But is being sexuallly harassed actually a voluntary matter? If you don’t believe she was sexually harassed, ask for some proof of a legal action or letter to her company from an attorney. If the sexual harassment issue is real…you can wait for a 3rd part to decide, or decide the woman should not have been forced to remain in that situation…your call.

    In any event, there is a method of release in every State when the seller won’t sign the release. It takes awhile and yes, it can hold you up from selling since you haven’t released the first buyer. But I personally sold a house once without releasing the Earnest Money by releasing the buyer from the contrtact EXCEPT as to the Earnies Money. I’d say go see an attorney, but it may cost you as much as the $500 you are fighting about. So my opinion…get proof that she is pursuing a sexual harassment issue and then let it go and get on with selling your house. Maybe she has a new job by now. Maybe she wants to buy it when she gets a new job.

    Get to the heart of…and have a heart.

    I’m not a lawyer…not even close 🙂 disclaimer

  69. Ardell, Is what you told Robert true in Washington state? (Next, in any State I know (Wisconsin not being one of them) the statements are true. No money can be released without the signatures of both the buyer and the seller by a real estate office or escrow holder.)
    This week the sale of my home fell through and I wasn’t asked to sign anything about the return of the earnest money, which I expected I could keep.
    My agent is very inexperienced, apparently and I am worried that my interests are not being represented. The sale did not go through allegedly because of a house inspection. When the inspector left he said there were just a few minor things wrong. Buyer’s agent told us the same thing. Then a few days later (crucial days during which we didn’t show the house to interested people, a mistake I won’t repeat) suddenly the buyers called off the sale (just in time of the inspection-related deadline) without giving me any opportunity to make repairs, which I would have. We think they just changed their minds.
    I have 2 questions; What’s the point of earnest money if the buyers can use the inspection as an excuse without giving seller the opportunity to fix things (and not many things at that).
    and 2: SHould I have been asked to sign something to return earnest money?
    I feel abused.

  70. Bluedog asks an important question (another post perhaps), ” What is the point of earnest money?” I think someone pointed out once here on RCG that EM seems to be mostly psychological these days since there are so many “loopholes” that allow a buyer to walk away without being in breach of contract.

    Agents – Do your sellers think they are going to get the EM if the deal falls through? How often has this actually happened in your career? How often have your buyers lost their EM? My guess is that most agents (like myself) have rarely, if ever, been involved in a transaction where EM was forfeited.

  71. Bluedog,

    The topic of this post, and Robert’s question, involved the Finance Contingency and not the Inspection Contingency.

    Many escrow companies by policy require both signatures to release the Earnest Money, but the Inspection Contingency is generally a unilateral right to cancel using the standard “Buyer Satisfaction” form. The cancellation form used for the Inspection Contingency does not require the seller’s signature. Nor does cancelling based on a Resale Certificate when buying a condo. So some situations do not require the seller to agree by signature.

    There used to be two types of inspection contingency forms in this area. One was called “Seller’s Opportunity to Repair” and provided the terms you suggest. The other is “Buyer’s Satisfaction”. Now only the 2nd type exists as a NWMLS form and the one you would prefer was taken away. Not sure why.

    During the first 5 to 10 days or so, depending on how the contracts are completed, a buyer generally has the right to cancel after doing their due diligence. So from a seller’s perspective, the house is really not sold until it passes through this period. Here we have an Active STI status and the property doesn’t go to Pending until the Inspection period is complete and conditions negotiated and satisfied.

    Generally the Earnest Money is forfeited UNLESS the buyer leaves based on a “legal out”. Your buyer had the legal out during that period and did not need your approval to cancel.

    All that said, I agree with you wholeheartedly. Often I yearn for the days when real estate made more sense. When I started in real estate the Inspection Contingency had a dollar limit, a blank to be filled in and agreed upon. The buyer could not cancel unless the report contained actual defects of “covered” items that exceeded the agreed upon amount. The seller has a right to know if their home is sold before they have to start packing.

    When Inspections first started, the buyer was permitted 7-14 days to do an inspection, but the escrows were much longer at 90 days or so. Now the escrow is halfway done at the point where the buyer is still on the fence about buying the house during the inspection period.

    The whole process is in grave need of reform.

    Specific to your questions, the answer to 1) is no under the current standard inspection form generally used. The answer to 2) Earnest Money is forfeited if the buyer cancels with no legal out.

    It really is very sad and I don’t blame you one bit for feeling abused. It’s one of the reasons I think buyers and sellers should meet one another before entering into an agreement that affects both parties so very much. A buyer should have to look the seller in the eye when delivering news that affects them so much, don’t you think? Maybe they’d think twice about their actions if they had this type of accountability.

    Other than shortening up the inspection period, there’s not likely anything your agent could have done. Recently I have not been permitted, as the seller’s agent, to attend the inspection. I’m mad as hell about it, as I think the seller has a right to hear what is going on, if not in person than by representation of his agent. But most inspectors deem the info to be “confidential” and between them and the buyer only, as do buyers.

    You should have continued to show the house, and maybe gotten an offer into backup position if possible. I wish you the best of luck, but again, your agent likely was not at fault in any way and could not have prevented this outcome.

  72. A new question to a very old post, hopefully there’s still some one that can respond.

    My contract shows the binding date as 09/23/2010 and the financing contingency period is set as 21 days. I couldn’t find any references on how to calculate the days. Should I include the binding date (09/23) in my calculation? If I do I end up with 10/13 but if I don’t (as my agent tells me but I can not understand why) and assume period starts from 24th and go for 21 days, I end up with 10/14. I couldn’t be sure. What is my last day for submitting the loan rejection letter?

  73. Hi Berke,

    I’m assuming you are local. Refer to your main contract (Purchase and Sale Agreement) Page 4 Section L. “Computation of Time”: “Unless otherwise specified in this Agreement, any period of time measured in days shall start on the day following the event and end at 9 p.m. of the last calendar day of the specified period of time.”

    I am of course not quoting YOUR contract…just pointing you to where in your contract you might find your answer.

    I have not had many clients in 20 years who needed to cancel on financing. In fact I can’t think of any off the top of my head.

    1) You should know before you make an offer if you qualify for financing
    2) You should know WELL before the deadline if you do NOT qualify for financing
    3) You should cancel the contract as soon as you know you can’t get financing if for some reason there was a change in your circumstances from the time you made the offer

    My $.02 YMMV

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