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Watch Out! Buyer Just Lost $2,000 when backing out of buying a home! It Happens to Many Buyers!

By
Real Estate Broker/Owner with UtahDave.com Neighborhood Experts

Watch Out! Buyer Just Lost $2,000 when backing out of buying a home! It Happens to Many Buyers!

Ouch!  No one wants to lose money when backing out of a home.   It happens often when the buyer's financing doesn't go through, they lose a job, or they get buyer's remorse about buying a property and back out.  There are many different reasons why a buyer may back out of buying a home.   However, there are keys to keeping your earnest money.  Please remember this disclaimer.  I'm not a lawyer.  I'm a real estate broker.  The law is clear for real estate brokers to be in charge of the earnest money. There are rules that we have to abide by regarding earnest money.

What is Earnest Money? Earnest Money is a deposit you put down on a home. The amount shows how willing and strong a buyer may be when making offers on a home.  Banks including Hud usually ask for anything between $1,000 to 1% of the home's purchase price.   This money usually goes into a trust account.   It goes towards the purchase of a buyers home upon closing.  The money however can be used as liquidated damages if the buyer or the seller defaults.  If a buyer defaults on the contract they could lose that money to the seller.    

How did the Buyer lose their money?   We will call this agent Jane.  I received an email from Jane, the buyer's real estate agent, stating that their buyer wanted to back out of the home (It's listed  for sale on http://www.utahdave.com ) and wanted to keep the earnest money.    I called Jane and said, "Hi Jane, can you tell me why you think your buyers should keep the earnest money?"   She said because the sellers didn't follow through properly on the disclosures. I tried asking several questions, but was repeatedly cut off before I could finish my sentence.  I know that, according to the DISC Personality profiler, 'D' personalities interupt people so I didnt let it bother me.  ( http://www.kahunarainmaking.com talks a lot about personalities.) But I never could get a sentence in.  She eventually hung up on me and told me to call her broker. I talked to her broker.  He mentioned the same thing. I asked him if he had seen the disclosures.  He said he hadn't seen them.   I pulled out the disclosures and pointed out the item she was talking about.   There was silence on the phone.  He said he would get back to me.   

Why did they lose their earnest money?   There are certain deadlines in every contract.  Those deadlines are negotiable as far as the timeline.  However, every buyer must perform certain tasks by the deadlines.   In this situation, the buyer asked for their deadlines and we agreed.   The deadline to inspect the property was Feb 5th.    We got a letter from her Feb 11th.  Almost a week later.  Plus it wasn't even signed. It was an email typed by the buyers agent.   The agent set up the inspection to be on the 12th.  They haven't even completed the inspection yet.  The deadline for appraisal and loan denial was Feb 11th.   They havent even performed the appraisal yet.  When you do things after deadlines, you are always at risk of losing your earnest money.  Which this person just lost theirs.   

How to Protect you?    Now, like I said, this happens often.    If you know the rules of the game you won't lose your earnest money if you are diligent.  There are 3 points to know so that you won't lose any money when buying a home.   

1.  Ensure you perform your duties a minimum of 3 working days before a deadline.                                      2.  When you object to the condition of the property, or if you back out, ensure that the other party        receives your notice before 5pm MST of the deadline.                                                                                       3.  Ensure that your notice is signed.    All notices must be signed and delivered by the deadline.  

If I was to add one more tip, it would be to ensure you have a good agent working for you.  This is really the most important. If you are working with an agent that has another job you could just miss these deadlines.  If you follow these tips, it will help you lower your risk and help you so that you aren't one of the many losing their money.  Good luck!

Comments (2)

Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Dave, This is huge problem in my area. Buyer's agents rarely keep time lines and think nothing of. I use a title company to hold deposits for my listings. I can't even count how many deposits are still sitting there because the buyers backed out and I advised my sellers not to sign the release.Unfortunately the only way my sellers can get them is to sue and they won't for a $1,000 but hell will freeze over before they willingly sign a release. So the money sits.

"Time is of the essence" is in a real estate contract for a reason.

Feb 12, 2009 09:34 AM
Christopher Bonta
The Bean Group - Londonderry, NH
Realtor, Integrity and Honesty

Dave, great points made by you in your post. What can also happen if the Buyer misses the deadlines etc, is that there is nothing stopping the Seller from invalidating the contract. This may not be happening a lot now but it can happen and Buyers need to be aware of this too. You make a great point about the quality of the Agent, if Buyers are not careful the Agent can cost them not only their money but potentially the home they want to buy!

Feb 12, 2009 02:04 PM