The Unthinkable - Who Dropped the Ball?
Who's job is it to make sure the buyer of your rehabbed property actually pays the earnest money deposit?
Is it:
I'm still learning real estate...I've done a couple of handfuls worth of deals...I've made mistakes, all include learning experiences. Where every deal is different, I've noticed a common thread that can really kill your deal - the buyer never pays the earnest money deposit!
How does this slip through the cracks?
You may remember from one of my early posts about an all cash buyer on our first property in Riverside...my main disappointment with that deal was that California has a 17 day inspection period. The property was in a "PENDING" state for almost 17 days with the buyer changed his mind and backed out. He was entitled to get his earnest money back, but I didn't think much about it when they mentioned the deposit was never received.
Then there was the Lancaster property that was in escrow for weeks. It wasn't until I asked about a closing date they canceled because the buyer never paid the earnest money deposit. This property was supported by hard money and cost me plenty of money during those weeks it was held in a "PENDING" status.
Then there was this last property, the condo that was supposed to go smoothly. It did in fact close and was very profitable, however there were several delays - come to find out that buyer never paid their earnest money deposit.
I WILL NEVER ALLOW MY LISTING AGENT TO PUT A PROPERTY IN A "PENDING" STATUS AGAIN UNTIL A CASHIER'S CHECK FROM THE BUYER IS AT THE TITLE COMPANY.
OK, I feel better now...
So that makes me wonder...who's job is it to make sure the buyer actually pays the earnest money? I sign the contract, which according to my business law education, isn't a valid contract without consideration (money). All the contracts are turned over to escrow...I wait while they do their due diligence on the property...the underwriters make sure the loan docs are correct, etc. The title company issues title insurance. Is there one person that ensure the buyer pays the deposit?
It appears the answer is Yes...ME!
Is it:
- The buyer's agent?
- The escrow officer?
- The listing agent?
- None of the above?
I'm still learning real estate...I've done a couple of handfuls worth of deals...I've made mistakes, all include learning experiences. Where every deal is different, I've noticed a common thread that can really kill your deal - the buyer never pays the earnest money deposit!
How does this slip through the cracks?
You may remember from one of my early posts about an all cash buyer on our first property in Riverside...my main disappointment with that deal was that California has a 17 day inspection period. The property was in a "PENDING" state for almost 17 days with the buyer changed his mind and backed out. He was entitled to get his earnest money back, but I didn't think much about it when they mentioned the deposit was never received.
Then there was the Lancaster property that was in escrow for weeks. It wasn't until I asked about a closing date they canceled because the buyer never paid the earnest money deposit. This property was supported by hard money and cost me plenty of money during those weeks it was held in a "PENDING" status.
Then there was this last property, the condo that was supposed to go smoothly. It did in fact close and was very profitable, however there were several delays - come to find out that buyer never paid their earnest money deposit.
I WILL NEVER ALLOW MY LISTING AGENT TO PUT A PROPERTY IN A "PENDING" STATUS AGAIN UNTIL A CASHIER'S CHECK FROM THE BUYER IS AT THE TITLE COMPANY.
OK, I feel better now...
So that makes me wonder...who's job is it to make sure the buyer actually pays the earnest money? I sign the contract, which according to my business law education, isn't a valid contract without consideration (money). All the contracts are turned over to escrow...I wait while they do their due diligence on the property...the underwriters make sure the loan docs are correct, etc. The title company issues title insurance. Is there one person that ensure the buyer pays the deposit?
It appears the answer is Yes...ME!
Comments (3)
There are a lot of things wrong here. First, CA doesn't have a 17 day inspection period, your contract had a 17 day inspection period. This is ridiculous. If a buyer can't shorten that to 10 days, I'm already skeptical of them. However, it is up to you to negotiate this. Second, I'm not really sure how it could have happened that either of these escrows make it past day 3 or 4 without someone raising a stink about the EMD. I know that every escrow I've ever been a part of as buyer, seller, or agent, the escrow company would hound the buyer if they had not yet received it (or send a receipt to all parties if they had). This isn't something that should ever fall through the cracks. In the instance of the condo that you mention the property closed despite an EMD never being paid... I call BS. That simply can't happen, because the EMD goes towards the purchase price. If you accepted a purchase price lower than what was contractually agreed because the buyer never paid their EMD, then frankly I have a lot of questions as to how you've made it this far in life. Much more likely the case, I think some facts are being twisted, or at least misunderstood.
Jake Kucheck, about 13 years ago
Thanks!
Jean Norton, about 13 years ago
I checked out your blog--very nice, Jean.
Jon Klaus, about 13 years ago