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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 was sold, and everything moved along. A week before closing, the buyer changed their mind because they didn’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 on the day of closing, so my aunt and I have been diligently packing. This all seems so one-sided. When is the buyer’s deposit at risk? Tina
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 $1,000,000 home (median selling price of La Crescenta homes) equates to $30,000.
Most real estate transactions include contingencies. For example, a buyer may agree to purchase your aunt’s home contingent upon approving its condition. The buyer hires a home inspector and conducts inspections. After reviewing the inspection results, the buyer can request repairs, approve the property’s condition, or cancel escrow. Many buyers also include loan and appraisal contingencies in their offers.
Years ago, the California Residential Purchase Agreement allowed contingencies to expire passively. For example, if a buyer had 17 days to remove a loan contingency, that contingency automatically expired on day 18 unless the buyer objected. In other words, silence signaled approval. Today, buyers must remove all contingencies in writing, and their deposit remains protected until they do so.
Most buyers do not automatically remove their contingencies. As a listing Realtor, I play an active role in tracking the many details required to close a transaction successfully. When buyers fail to remove contingencies on time, the listing agent should issue a Notice to Perform. This notice requires the buyer to remove the contingencies or risk having the seller 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.
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