The Cold, Hard Truth About Deposits

The buyers on the other side of your sale are cancelling escrow.

No big deal, right?  Someone else will buy it and anyways you get to keep their deposit.  A nice hefty sum, at 3% of your 500K San Diego real estate purchase price, that works out to a lovely 15K to go shopping.

The buyers have a “contingency period” (period in which any potential issues such as inspections, appraisals, disclosures, etc are reviewed and they cancel escrow with no recourse) of 17 days, and the ones you were in escrow with already removed their contingencies.

They are in the wrong and you are in the right.  Right?

Yes, you are. In theory.  The buyers removed contingencies which means that besides the documents to sign for the loan and the money to arrive in escrow, the only other factor is that they changed their minds.

This happens time and time again.  Buyers get cold feet, suddenly they can’t see themselves living in the house, and lo and behold, you were counting the days till the moving truck was coming, when the cancellation of escrow arrives.

Now you want to keep their deposit.

I’m not going to get into the legalities of the real estate contract, I’m really not allowed to.  Attorneys write up the contracts and we fill them out, so the true interpretation of the contract is left to the attorneys.  The situation which occurs almost everytime is that the seller gives the deposit back.  Remember, laws in different States are different for real estate.  In California, it makes more sense for the seller to give the buyer back the deposit.

Why?

Weren’t the buyers in the wrong?  Yes, that may be true.  At the end of the day, both parties must agree on what will happen to the deposit.  If they do not agree, escrow holds the check there.

While escrow is held open with the deposit, you can only market your home as for sale “subject to cancellation of current escrow”.  This deters buyers from viewing your home.  More importantly, you cannot open a second escrow and close until the deposit is accounted for.

Are there options of mediation or arbitration?  Yes absolutely!  The cold, hard truth?

I’ve never seen anyone who wanted to go after the buyers for the deposit and hold up the sale of their house instead.

The truth is, you stand to make more money moving on and selling your home than fighting for the 3% deposit.

The moral of the story: really qualify the buyers to see if they are realistic, motivated to buy, and really want the home.