Earnest Money - The Tool Used Against Home Buyers

Earnest money is just that, a deposit in Escrow that states you the buyer, wants the seller to withdraw the property off the market for so many days. You earnestly promise to purchase the property if the seller agrees by signing legally binding escrow instructions. This tool, the earnest money deposit is held against the buyers many times as leverage to force him to buy a home at any price.

The buyer who earnestly tries to purchase a property and then cannot through no fault of his own is entitled to his money returned, but many times a Broker or Seller will pressure the buyer to stay in an escrow against his will. He is pressured to accept a home he is not happy to purchase.

Ethical Behavior is Just Good Business:

This is where ethical behavior comes into real estate. It is unethical for a Realtor to hold the earnest money as a tool against the buyer. It is unethical to require a buyer to purchase a home, unless there is not a valid reason to proceed. But, like many things, it happens every single day.

A really good ethical Realtor would never require a buyer to pay a large amount of money in escrow to begin with. On a small home, $1000 is sufficient. If there are bidding wars going on, then a larger deposit is required. Sellers do feel better with an offer that has $2000 or more, but it is a useless scenario.

The buyer always win in the end, if he knows anything about real estate at all. He signs a contract guaranteeing him arbitration. The arbitration clause states the most he can lose is $1500 in most states. So even if they went for everything he has, that is the most he can lose. Most agents who follow their brokerage, knows that it is against policy to hold a buyer against his will in a contract. As with sellers, they are released automatically with a little pushing.

No brokerage wants to be involved in a lawsuit. If the buyer will just say the words, "Lawsuit" they will set him free. But hungry agents and hungry Brokers today in this awful market play the trump card and threaten the buyer, that he will be sued for the entire amount of the home, which is correct. The buyer can be sued if the seller presses charges, unless they signed the arbitration clause.

But unethical brokers and unethical agents will pressure the buyer, by not telling him the truth. They will tell him all kinds of bad things just to get one "lousy" paycheck. That buyer will tell everyone how he was treated and they will lose more business than it was worth. The buyer will remain in the deal, but he will not be happy and an unhappy buyer will tell 9 people. A happy buyer will tell one person.

It is never worth the consequences to hold a buyer in a contract when he does not want to purchase the home. It is very sad today as many buyers will go and see another home they like better and try to break their contract illegally, causing everyone hardships. The seller lost prospective buyers for his home by taking it off the market and the agent loses the commission. In the times of hardships, everyone is suffering. It seems more and more that not only are Brokers unethical in some cases, but buyers are falling into the trap also.

Many unethical Brokers are also soliciting buyers when they know they are in a deal already. It is against every rule, that the Board of Realtors maintains. An agent can be brought up on charges for soliciting another persons client. A Broker has a fiduciary duty to his client and a client owes loyalty to his Broker.

Legally the buyer is entitled to cancel his contract for many reasons.

1. Does not qualify for the loan.

2. The house does not appraise.

3. The house fails the home inspection.

4. The seller refuses to repair items on the home inspection.

5. The title report shows the owner of the property is not the one signing the contract.

If any of these items come up, the buyer has a right to cancel the contract and receive all his money back. The only way this can happen though is with signed cancellation instructions in escrow. Should the seller delay, there is very little the buyer can do other than threaten to sue or go to arbitration.

Many sellers will delay hoping the agents put the deal together and in some cases it does happen. It is never a good thing to threaten your buyer or place him in jeopardy. It is better to cancel the contract and place him in a different home. If he does want a new agent, then hopefully down the road he will refer to you a buyer. Keeping your reputation clean is more important than winning $500.