No Adult Supervision at California Association of Realtors; Teenagers are in Control.
The entire universe requires a prospective buyer to tender an Earnest Money Deposit when that buyer offers to purchase real estate. But not in California.
Realtors everywhere believe a deposit demonstrates the prospective buyer's earnestness and sincerity, that's why it's called an Earnest Money Deposit. But CA Realtors are smarter than that; we're special.
Until recently the California Association of Realtors (CAR) Purchase Agreement was entitled: "Purchase Agreement and Receipt for Deposit". Agents referred to it simply as a 'Deposit Receipt'. But, not any more.
About three years ago our State Association modified the standard Purchase Agreement. By default, it now says the buyer promises to deliver a check to escrow within 3 days of contract ratification.
The thinking in vogue with the teenagers in charge of forms is that we're in a digital age of online banking, wire transfers and digital signatures. Deposit checks are an old-fashioned remnant of a bygone era. Getting a check is now regarded by CAR as a waste of time because the offer may not be accepted. Why waste time getting a deposit since the buyer can deliver the check, or wire the funds, if their offer is accepted? Why do today what can be put off until tomorrow and then done with less effort, if necessary?
The problem is obvious to experienced listing agents; some "buyers" don't deliver the check as promised. Not often, but it happens. It has happened to me on my listings more than a couple times. The buyer just enjoys the thrill of the negotiating offers and counter-offers, I guess. When the offer is finally ratified, the check isn't delivered to escrow as agreed. The buyer changed their mind, after contract ratification. There is no recourse for the seller except to re-sell the property and hope that multiple offerors, if any, are still interested.
Asset managers and REO agents know this happens. It has happened to them. That's the reason they require the Selling Agent to be in possession of the deposit check. They negotiate hundreds of deals each year. But somehow the CA Agents, who probably average 3-6 listings per year, know more than the asset manager who sells two and three times that number each month. But teenagers always know best, don't they?
When this happens, when the check is not delivered as promised, the Seller can't quite believe they're dealing with professionals. No amount of persuasion can convince them California Realtors are not "Amateur Hour" contestants.
The Seller needed a deposit when they bought the home. And doesn't the offer of generous compensation to the Selling Office include them getting an Earnest Money Deposit from the buyer with the offer? Even if it turns out for naught. It used to, and it does in the rest of the country. It should in CA. But we're special.
What the teenagers don't understand is that there is a gut-level reaction when a prospective purchaser writes a check for a large amount of money (customarily 3% in Silicon Valley) and hands it to their agent with a signed purchase contract. A light goes off and their brain says: 'This is important and serious, it's not a game...pay attention'. That was true in 1976 when I first observed a buyer's reaction when I asked for and received a Deposit check, and it's still true today.
Technology has changed many things, but not our emotions about putting a large sum of money at potential risk. Then and now, it focuses one's attention and lets us know we're entering an important negotiation. That's the purpose of an Earnest Money Deposit. Without that check those feelings are absent.
It's my hope some grown-ups at CAR read this post.
Certified Realty Services
19200 Shubert Drive
Saratoga, CA 95070-4046
Certified Residential Specialist (CRS); Graduate, Realtor's Institute (GRI)