Do You Know Where Your Buyers' Deposits Are? Ethics, Standards of Practice and The Law.
There is the Realtor® Code of Ethics and Standards of Practise and then there is state law. The difference between the two is that while the law seeks only to protect the consumers the Realtor® Code of Ethics and Standards of Practice goes above that and extends to the ways in which Realtors® treat each other.
In the state of Florida there are thousands of people who have real estate licenses. Every person in the state of Florida that sells real estate ( there are exceptions) must be licensed by the state of Florida to do so. In fact, recently it became a FELONY to sell real estate without a license. Not every real estate licensee is a member of the National Association of Realtors® or the state and local boards of Realtors®. A real estate agent who is not a member of NAR is not subject to the Code of Ethics and Standards of Practise set forth by the National Association of Realtors®.
The second biggest reason that real estate agents in Florida lose their licenses is over deposits or earnest money deposits. The first reason is for misrepresentation. 
A true story ( the names have been changed to protect the innocent):
Diane wrote a contract for her buyer. He gave her a deposit of $10,000 at 3 p.m. in CASH. She was very nervous with all that cash and so she rushed to her office to give it to her broker. When she arrived she discovered that her broker had gone home for the day and she was not able to reach him. She was so scared of either losing the money or someone stealing the money that she rushed over to her bank and deposited the money for safekeeping into her personal bank account. FREC somehow found out about this and she lost her license for putting the cash into her bank account. This is illegal to do in the state of Florida.
The state of Florida is very serious about deposit issues. If you have a check made out to your real estate company it must be out of your hands and into the hands of your broker as fast as you can but no later than the next business day.
When must funds be deposited in an escrow account?
Deposits of escrow monies should be immediately deposited upon receipt by the licensee. 'Immediately' generally means the placement of a deposit in an escrow account no later than the end of the third business day following receipt of the item to be deposited. Saturdays, Sundays and legal holidays shall not be considered as business days. A deposit received on Monday must be deposited no later than the end of the following Thursday. ( this is from FREC)
NAR Standards of Practice Article 2-4 states:
" Realtors® shall not be parties to the naming of a false consideration in any document, unless it be the naming of an obviously nominal consideration."
When you accept earnest money from a buyer you need to know where this money comes from and it is really there. Never sign for a deposit that is not there. This is the # 1 biggest mistake that I see agents make in our area. I get these offers all the time from buyer's agents with deposit amounts written into the contract but no deposit taken.
We insist that if a buyer is not placing an actual deposit at the time of the offer that the words, "within 3 business days of the acceptance of this offer funds shall be placed in named Title company at this address with this phone number and this contact person". In fact the new FAR BAR contracts have a space to add the title company information. I am not an attorney and I am not giving any legal advice.
Let us examine this scam that takes place in the state of Florida with deposits:
Mr and Mrs Smith go house hunting. They arrive in Naples Florida and find out who the newest agent to have joined the board there is. Her name is Miss Rooky. Mr Smith calls Miss Rooky up at her office and says they would like to see one of the listings that her office has listed. She is so excited. This is going to be her first showing and the house is listed at 3.2 million dollars! WOW! Miss Rooky meets Mr and Mrs Smith and shows them this listing. The Smiths say they are in love with the house and tell Miss Rooky to write up an offer. They want the house.
Upon arrival back at the real estate office Miss Rooky can hardly contain herself. The Smiths are going to make a full offer! When it comes time to fill in the blanks, Miss Rooky asks how much of a deposit will they be putting down. Mr Smith says, $100,000. They finish filling out the contract, the Smiths sign the contract. Miss Rooky signs the contract and fills in her company information, then she makes a copy of the contract and as she hands it over to the buyers she asks them for their check so she can make a copy of the check and turn it into her broker. Mr Smith smiles and looks over to Mrs Smith and says, " Honey, write the check please" at which point Mrs Smith gets an OH OH look on her face. She exclaims, " Oh NO! Where is my check book." Mr Smith then says, " Dear, don't tell me you forgot your check book at the hotel!" Mrs Smith says in an emarrassed tone that she did leave the check book in the room at their hotel. Mr Smith then goes on to tell Miss Roocky that they are SO sorry that they do not have their checkbook but that they will go back to the hotel and get it and bring it by first thing in the morning. Miss Roocky is so excited about the offer that she just says that this will be fine and she will see them in the morning at her office.
The next morning Miss Roocky is so excited and was hardly able to sleep the night before. She rushes in to the office. However, before she arrives at her office Mr and Mrs Smith walk into the broker's office and say that they have changed their minds about the offer they made the night before with Miss Roocky and they want their deposit returned. Miss Roocky arrives on the scene to see the couple in her broker's office. When she walks into the office she hears them tell her broker that this money was in cash. $100,000 in cash they said that they had left with their agent!
Now this Mr and Mrs Smith can travel from city to city in Florida performing this scam. And they can get away with it based on the numbers of agents who accept deposits without proof of funds, without checks and without signatures of acceptance from Title companies. I see agents take offers stating deposits that are not there all the time!
Safe Tips For Deposits:
- Do not ever write an offer stating that you have received a deposit when you have not.
- Before writing an offer confirm the source of the deposit.
- If the buyer is getting funds from a 401K; it will be at least 2 weeks before they will have those funds in their possession.
- We have decided that our brokerage will not hold escrow deposits. All deposits go to a title company, a third party.
- Make sure the title company signs that they have accepted a deposit from your buyer or from you.
- Make sure you email or fax the listing agent a copy with who signed for these funds.
- Know the laws in your state regarding monetary and other considerations.
Safeguard your license.
Katerina Gasset, CIPS, Realtor ®, Business and Life Coach, Speaker and Author. Reach Katerina at: 561-753-0135
Disclaimer:The information provided herein is supplied by several sources and is subject to change without notice. Wellington Homes Blog does not guarantee or is any way responsible for its accuracy, and provides said information without warranties of any kind, either express or implied. Entries on Wellington Homes Blog represent the opinions and ideas of the author(s). Wellington Homes Blog does not express the views of International Properties and Investments, Inc or those of the broker.
Copyright © 2008 By Katerina Gasset, All Rights Reserved.*Do You Know Where Your Buyers' Deposits are?Ethics- Standards of Practice and the Law.* Contact Katerina Gasset for Customized Business and Personal Coaching.
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VERY GOOD ADVICE.
Our laws are quite different but just as severe and escrow is one of the top two reasons for agents getting in trouble.
I do hold earnest money deposits for buyers, but I'm a control freak.
I would never take a cash deposit.