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Buyer Contingencies… The biggest protection of your deposit!

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Any real estate transaction comes with a certain level of risk, and if there is anything that this profession has taught me, it’s that nothing is a guarantee.  At times, transactions can’t be salvaged, and when this occurs, the most prominent questions from buyers is often regarding the disposition of their deposit.  Is it refundable?  Does the seller get to keep a portion of it?  What’s the procedure for getting it back?  These are are valid questions, and the answer is…it depends.

For those who are brand-new to the buying process, let’s take a moment to discuss the deposit.  At the start of any transaction, a buyer will propose an amount of money that they are willing to deposit into a third-party escrow account, should their offer be accepted by the sellers.  Properly referred to as the “Earnest Money Deposit (EMD),” this amount is typically due to escrow three days after the offer has been accepted. Once in escrow, these funds will be held until the closing of the transaction, or the cancellation by one of the parties.

This brings us back to the disposition of the deposit should the transaction fall apart.  Built into any deal, and operating as the protection for buyers, are the “buyer contingencies.”  These contingencies represent the major aspects of any real estate deal and the areas that should be of most concern to buyers.  The continuation of any transaction towards closing hinges on the buyer satisfying these contingencies and formally releasing them at a set time-frame.  Release can only occur via buyer signature, and once released, a buyer is acknowledging that they can no longer cancel the deal based upon that contingency and still obtain a refunded deposit.  Once all of the contingencies are released, a buyer is confirming their willingness to proceed, and further acknowledging that should they try and cancel the deal at a later time, the seller has a right to keep the full deposit amount.  As long as just one contingency remains in place, there is an opportunity for a buyer to cancel and still receive the deposit, but the reason for the cancellation should be related to the contingency upon which the cancellation is based.  For example, a buyer who has released all but their loan contingency should not be cancelling the deal based upon a new finding related to the physical condition of the property and trying to use the loan contingency as a reason to get the deposit back.  Doing so, may cause the seller to fight the release of the deposit and claim that the buyer did not act in “good faith.”  Deposits can only be released by escrow through mutual agreement of both buyer and seller, and a seller can refuse to release a portion or all of the deposit if they feel there is a “good faith” reason to do so.  The bottom line, is that a buyer needs to make sure they stay up to date on the contingency time frames and only release them when they are satisfied with all findings and investigations and are ready to make their deposit non-refundable.  Below is a description of each of the contingencies and what to expect for each:

LOAN CONTINGENCY:  Typically a 21-day time frame, this contingency relates to a buyer’s ability to obtain the financing necessary for completion of the transaction.

APPRAISAL CONTINGENCY: Typically a 17-day time frame, this contingency relates to the completion of an independent appraisal that has a value that meets or exceeds the offer price

BUYER’S INVESTIGATION: Typically a 17-day time frame, this contingency relates to the completion of a physical inspection of the for sale property, and identification of any issues or defects.

HOA DISCLOSURES: Typically a 17-day time frame, this contingency relates to the review of the HOA documents and any information related to a planned community or condo project.

REPORTS/DISCLOSURES: Typically a 17-day time frame, this contingency relates to the buyer’s ability to familiarize him/herself with any seller provided reports or disclosures.

TITLE: PRELIMINARY TITLE REPORT: Typically a 17-day time frame, this contingency relates to the buyer’s review of the title report and any findings clouding the title

SALES OF BUYERS PROPERTY: A varying time frame depending on negotiations, this contingency exists when buyer needs to first sell a home to complete a sale.

Concerning findings, or “deal-breakers” related to any of the above contingencies, are valid reasons to cancel any deal and make a claim for a return of the deposit.  Once these contingencies are released, a buyer’s deposit is in jeopardy and the chances of getting it back become increasingly slim.  Any buyer needs to make sure to maintain a thorough understanding of what contingencies are in play on their deal and work with their agent to make sure that they are all being handled appropriately.

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