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When is the buyer’s deposit at risk?

Winning the bidding wars

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 ?


Dear Tina,

I am sorry this happened to you and your aunt. The first cause for concern is the buyer’s low earnest money deposit. Typically in our Foothill real estate market the buyer’s earnest money deposit is three percent of the selling price. A three percent deposit on an $850,000 home (median selling price of La Crescenta homes) equates to $25,500.

Most real estate transactions have contingencies. For instance the buyer agrees to purchase your aunt’s home subject to them approving the condition. They hire an inspector, and inspect the home. At this point the buyer makes a repair request, approves the condition of the home or cancels escrow. Most buyers also have a loan and appraisal contingency.

Years ago, the California Real Estate Contract stated that buyer contingencies were to be removed passively. For instance, if the buyer had 17 days to remove their loan contingency it was automatically removed on day 18 unless they buyer stated otherwise (silence deemed approval). Today, all buyer contingencies need to be removed in writing and the buyer’s deposit is not at risk until contingencies are removed.

Most home buyers don’t automatically remove their contingencies. A very important aspect of my job, when acting as the listing Realtor, is to follow up on the myriad of details required for a successful closing. When contingencies are not removed the listing agent should send a notice to perform to the buyer, notifying them that the contingencies are to be removed or the seller can cancel escrow.

Did your aunt’s buyer remove their contingencies in writing? If they did not remove their contingencies in writing, then you have no claim to the deposit. I am not a real estate attorney, but in my experience as a Realtor once the buyer removes all contingencies in writing the seller has a valid claim to the buyer’s deposit.

Depending on how the purchase contract was structured, dictates whether your aunt needs to hire an attorney or proceed to mediation and arbitration to make a claim for the deposit. In either instance, if the contingencies were removed in writing your aunt has a claim to the $10,000.00. Best of luck to you and your aunt on getting her home back on the market and sold.

If you have any additional questions please reach out to me at [email protected].

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