When writing an agreement each state calls the deposit something different. In Pennsylvania we refer to it as "Earnest Money" deposit. It used to be just one single deposit, several years ago they split it into two allowing buyers to put a low earnest money deposit with the agreement when submitted, and a larger second deposit after inspections usually. When home prices were lower, and people used to put 20% down when buying a home this would generally be about 10%. Nowadays, with the need for a 20% down payment removed and with prices having increased so significantly these two deposits often amount to 5% or less total. If it is a short settlement period, then there may only be one deposit made.
So, what happens to the money when it is submitted? Generally the listing broker will hold the deposit in "Escrow". This is a specific type of bank account that is separate to the general funds of the broker and the two should not be mingled. Some brokers today no longer want to hold escrow for various reasons, so it might be held by the buyers' broker or the Title company handling settlement. At settlement or just before the listing broker delivers the deposit to the settlement/title company to go towards the buyers purchase price.
There are good reasons why a buyer would prefer the deposit to be held by a broker rather than a title company as the agreement specifically states what happens to these funds if the deal should fall apart before settlement.
If the agreement is ended or terminated because of one of the contingencies within the time period stated in the agreement, generally the funds will go back to the buyers. A release is signed by the buyer and seller stating how the funds will be distributed.
However, if the buyer is in breach of contract, the seller may ask for the funds to be released to them, and if the buyer and seller agree, then the release is used to specify how the deposit is split between buyers and sellers.
If the buyers and sellers cannot agree on how to split the funds, they can go to mediation or go to court. The agreement specifically states the broker holding the money cannot release the funds unless there is a release signed by both parties or a court order.
Sometimes a seller may not sign because they are angry the deal fell apart. Then the buyer can wait till a date specified in the agreement it defaults to 180 days if not completed and the buyer or seller can ask for the funds to be released, if there are no legal actions taking place.
The Pennsylvania agreement of sale is very friendly towards buyers, but their funds can be at risk under certain circumstances.
If you are thinking of buying or selling along the Main Line or Chester County and need help contact Nick Vandekar, Realty ONE Group Advocates, office 484-237-2055, cell or text 610-203-4543 email Nick@VandekarTeam.com. Let me give you the confidence to make the right decision throughout the transaction.
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