The Truth About Binder Deposit Disputes

[Justin Bullock]

“The Truth About Binder Deposit Disputes”

By Justin M. Bullock, Real Estate Developer & Investor

I have been very fortunate in my investment career not to have ever personally found myself wrapped in a binder dispute. However, in multiple recent experiences in my operations working as an active real estate agent, I’ve represented several customers working to sell their homes who have ended up not quite as lucky.

While I am not an attorney and am not qualified to give legal advice, I can certainly disclose some of the knowledge I have gained from these recent transactions which end up in binder disputes.

The facts are, when there is a binder dispute, one of the first processes is that the seller(s) or buyer(s) in these disputes must contact an attorney to help assist them through the processes.

My real estate attorney advised me that in my role as a Realtor®, I only have the power to talk to the other agent (or to both parties directly when they are both my customers) to help see if anything can be resolved in that capacity of negotiations or that otherwise the only other thing I can essentially do is advise my customer(s) to seek the counsel of the title company which we may be working with or to seek such counsel with an attorney.

Typically, when the binder is held with an escrow or title company, the escrow or title company will work with both parties to see if they can help facilitate the parties to come to an agreed settlement amount.

During this time frame however, the property cannot actively be marketed so, if it is listed on the MLS, it must be left in the contingent or pending status.

This means that while the escrow or title company is working towards a resolve, the seller is losing valuable time, especially when the binder is under several thousand dollars. I’ll elaborate as to why that is.

If the escrow or title company is unable to resolve the matter between the buyer(s) and seller(s), they will likely file a lawsuit that forces the buyer(s) and seller(s) to resolve the dispute in court.

Once attorneys tack on their fees for services, there may not be much to anything left over from the binder for the prevailing party to take, and this most likely would be the case if the binder deposit in dispute is under several thousand dollars.

Even if a judgement is made against the party who loses, some individuals may be “judgement proof” for a variety of reasons, or it could take ages to actually receive the judgment, or if ever even at all…

Long story short, from what I have found, unless it is a significant binder deposit (where “significant” is subjective, I’d personally suggest it is one over several thousand dollars or one at least which gives the prevailing party any kind of positive upside for their situation) and a seller can afford to lose the time on the market, or in the event a buyer has truly been disserviced, binder deposits seem to not hold as much weight as I once thought they did.

What I find to be rather unfortunate about my recent experiences is the fact these realities seem to apply even when it is glaringly evident that one party is clearly in the wrong over the other.

The best thing I can recommend is as a seller, ask for more significant binder deposits from buyers and push harder for shortened inspection periods to help eliminate potential further unnecessary time off market.

As a buyer, based on these facts, you should consider pushing for smaller binders and for more prolonged inspection periods.

To be honest, these recent experiences representing these sellers who were working honestly and fairly to sell their properties where the buyers directly defaulted and then still got their entire binders back has changed my entire viewpoint regarding the integrity of how the whole “earnest money” process works.

In summary, since most sellers cannot afford to lose such valuable time off the market, and unless the binder deposit is valuable enough to where the seller feels it may be worth pursuing, or unless the seller really is not too hard pressed to sell their property and/or can afford to keep it off the market, my conclusion is that binder deposits may not add as much protection to property sellers or property buyers alike as I once thought they used to.

Whether you are a seller or a buyer, my best advice is to always use contracts with provisions which protect you and your best interests and to work with reputable real estate agents, title companies, attorneys, and other real estate professionals who can help you through the processes from start to close.