There’s very little worse in real estate than having a deal fall through after it’s signed by both parties.
Even with the legitimate reasons for “breaking up” via inspection clauses, mortgage and appraisal contingencies and the like, people are still generally ill-prepared to handle the emotional rollercoaster when the other party in the transaction decides to call it quits.
Earnest money deposits (checks written from the buyer to the seller as collateral upon signing the agreement of sale) usually aren’t large enough that the threat of losing the money is serious enough to keep an antsy buyer tied to the deal. Think about it: Would you stay in a transaction for a $250,000 property if you only had to lose $1,000 to walk away? That’s a small price to pay – and many buyers pay it gladly.
The real estate industry needs to up the expectations for deposit money in my humble opinion; the days of 100 percent financing and “no money down” homes are generally over, so why allow such tiny deposits? Anyway, sellers who accept such low numbers may rue the day they did.
Then there’s the splitting of said deposit. In real estate, the buyer and the seller may split the deposit should the buyer decide to walk. This is one of the worst negotiations to go through if nobody can agree on a “fair” amount. Also, it’s at this point that some people (mostly sellers) are forced to remember that they agreed that their brokers could have half of their cut! Oops. All this drama can make the breakup of a deal that much more stressful.
Hoping to avoid all this? First, be sure to understand the agreement you have with your broker and how much it will cost you from the deposit you accept. If you’re making the purchase offer, ask a lot of questions of your agent regarding the best amount of deposit (buyer’s agents will say go low, sellers agents will say require high… of course).
Be crystal clear how much money you are risking and under what circumstances you’ll be entitled to it all back. Understand the clauses in your contract, especially the key dates that you’ll need to make. Lastly, be prepared to lose your money — at least to an escrow account that will hold it for months while you (and your attorney) wrestle with the other party in the deal.
When two people have to negotiate the end of a real estate deal that began with the best of intentions, nobody has a good time. By being prepared for all eventualities, you’ll at least be ready for the breakup, even if it never happens.