When is the buyer’s deposit at risk?
Dear Phyllis,
I am helping my aunt sell her La Crescenta home so she can move closer to my sister, who lives in Oregon. Her neighbor is a semi-retired Realtor® and offered to list her home for a discounted commission. Her home sold and everything moved along. A week before closing, the buyer changed their mind because they don’t like my aunt’s location – her home is on a somewhat busy street. It seems to me that my aunt should be able to keep their $10,000 deposit. But her Realtor/neighbor says the only way to keep the deposit is to take them to mediation and arbitration. The buyer wanted to move in the day of closing, so my aunt and I have been diligently packing. When is the buyer’s deposit at risk ? Tina
Dear Tina,
I am sorry this happened to you and your aunt. First, the low earnest money deposit raises concern. In our Foothill real estate markets of La Canada and La Crescenta, buyers typically submit a 3% deposit. For an $850,000 home, that equals about $25,500.
Most real estate transactions include contingencies. For example, buyers accept the home subject to inspections. They hire an inspector and review the property. Then they either request repairs, approve the condition, or cancel escrow. Most buyers also include loan and appraisal contingencies.
In the past, California contracts allowed passive contingency removal. For example, if a buyer had 17 days to remove a loan contingency, it automatically expired on day 18 unless the buyer acted. Today, buyers must remove contingencies in writing. Until they do, their deposit remains protected.
Most buyers do not remove contingencies automatically. As a listing agent, I must actively track these deadlines to protect my client. When buyers fail to respond, the listing agent should issue a Notice to Perform. This document requires the buyer to either remove contingencies or allow the seller to cancel escrow.
In your aunt’s case, I ask this key question: did the buyer remove contingencies in writing? If not, your aunt likely has no claim to the deposit.
If the buyer did remove contingencies in writing, the seller may have a valid claim to the deposit. I am not an attorney, but in my experience, written removal of contingencies strengthens the seller’s position.
Finally, the contract terms determine the next step. Your aunt may need legal counsel or may proceed through mediation or arbitration. In either case, if the buyer removed contingencies in writing, your aunt may have a claim to the $10,000 deposit. I wish you and your aunt success in relisting and selling the home.
If you have any additional questions, please reach out to me at [email protected].
