Playing Hardball with Earnest Money

I was in a meeting yesterday with one of my brokers when the subject of earnest money came up. It came up because he was heading to an Ohio Association of Realtors executive committee meeting and one of the topics on the agenda was going to be earnet money deposits.

More and more issues have been coming up with sellers playing hardball when a transaction falls apart before getting to the closing table, so the thought is perhaps a re-writing of the purchase agreement is in order that will address the earnest money issue differently.

In Ohio, earnest money is not mandatory. When it is offered as part of the purchase agreement, it is usually in the form of a check written to the buyers agents brokerage, where it is to be deposited within 3 days into the broker's trust account. Once in that trust account, it cannot be returned to the buyer or given to the seller without written authorization from both parties.

Therein lies the problem.

As is common recently, buyers are not sporting wads of cash. If a transaction falls apart and the earnest money is not returned promptly, it can be quite difficult for the buyer to then make an offer on another property, as that earnest money is off in lalaland. If the seller feels the buyer is being unfair in not proceeding with the transaction (usually because of inspection issues), they simply leave the ball (aka earnest money) on the playground or locked up in the equipment locker. I don't think they are legally required to sign anything. The only legal requirement is that it takes both signatures to release the money.

In Ohio, if the earnest money check is for $3000 or less, the buyer can take the seller to small claims court, where no lawyers are needed, etc. But if it's OVER $3000, then it turns into a bigtime ballgame and often more money is spent trying to retrieve the money than what the original amount of the deposit was written for.

Sellers know they have leverage here and in these market conditions are using this leverage even more than before. I've heard recently of a seller (who happens to be a bank), asking for earnest money in the amount of the estimated down payment and closing costs of the buyer side. Now, correct me if I'm wrong, but any buyer's agent worth their salt would not allow their buyer to agree to this, as if things fall apart and the seller wants to play hardball, this buyer would be out a substantial amount of money and not be able to purchase another property in any way, shape, or form.

On the other hand, a good seller's agent would protect their seller from buyers who hop from offer to offer to offer but always find something wrong during the inspection process.

Of course, the inspection process is an entirely different blog!

So, any thoughts on how to word a contract so that a buyer is protected from a vindictive seller who won't play ball? And so a sellers agent feels his seller client is still protected from a not so serious buyer? I have experienced a few scenarios of contract language lately, but would like input from the peanut gallery.

*Please note that all state's contracts are different from each other, so what may apply to one may not apply to another.