So Your Home is Under Contract. Do you Think the Buyer Broker is Going to Allow you to Hold the Escrow Deposit?
Copyright © 2014- 2019 AUTHOR: Paul R. Marino, REALTOR®, e-Pro®
This article is written primarily from the perspective of a home seller, although home buyers can benefit from this information as well. It is important to understand how escrow deposit funds are handled during the course of your transaction. Escrow funds are monies deposited by the buyer, to be held in a special account, subject to no notice audit (by your respective state real estate commission, whether it be CT, MA, NH, VT, or ME) . You should know that no matter which New England state your transaction is located in, there are very special rules that apply to the collection, deposit, and disposition of these funds.
Every real estate brokerage office throughout CT, FL, MA, ME, NH and VT must maintain a separate and distinct escrow account, to be used exclusively for the purpose of holding buyer deposit funds until it comes time to disburse those funds at the closing table. It is considered a highly egregious offense for a real estate brokerage to intermingle escrow funds with their normal day to day business accounts. As such, as both a buyer and a seller, you can rest assured that escrow funds are very carefully monitored and maintained.
Every offer to purchase real estate should be accompanied by a good faith escrow deposit. How large should this deposit be? From a seller perspective, you always want a large deposit; the bigger, the better. Conversely, from a buyer perspective, the magnitude of this deposit should as be as small as possible; the smaller the better. As this article is written primarily for our home seller clients, you want this deposit to be substantial, because you don't want a buyer to put up a nominal deposit, drag you along for six weeks, then, at the eleventh hour, on a whim, say: "You know what...we really aren't going to go through with this transaction after all." Bummer. In the event a buyer does drop this bombshell on you late in the game, you're going to be mad, as in very mad.
What is your recourse if the buyer elects to breach the contract and terminate the agreement? Generally speaking, from a seller perspective, your recourse is going to be limited to keeping the deposit as liquidated damages. You should consult an attorney, specifically an experienced real estate attorney (not a slip-and-fall attorney), if you have any questions about what can be done. But, speaking as a real estate broker, and not an attorney, your recourse is likely to be retention of the deposit. This is why you want the deposit to be as large as possible. Do you really want to put your $400,000 property under contract with a paltry $1,000 deposit, and then six weeks or more later be told by the buyer they found something nicer, and are bailing on your property? No, you don't. Many people will walk from $1,000. Some will walk from much more. As such, you want to be sure that if the buyer does choose to back out, you want to inflict some "pain". And in the civilized world, "pain" translates into money.
So, how much should the deposit be? It depends. Depends on a lot of things. There are no hard and fast rules, no matter what state you live in, whether it be CT, MA, NH, VT, or ME. Nearly everything in real estate is negotiable. So when you put your signature to that purchase agreement, you want to negotiate a figure that is reasonably large enough to deter the buyer from backing out at the last minute. As a general rule of thumb, you want to see something on the order of 2% to 3%. This translates into $5,000 to $7,500 on a $250,000 property. On a $500,000 property, it's $10,000 to $15,000. And on a $1,000,000 transaction, it's $20,000 to $30,000.
So let's say the worst happens. You're six weeks down the road to closing, and you get the dreaded email that the buyer is walking away. What to do? You will want to consult the listing agreement that you signed with your listing brokerage. They're all different. They vary from state to state and brokerage to brokerage. Many brokerages will have you sign a document that states they (the brokerage) will retain some percentage of the deposit (many as high as 50%) in the event the transaction goes south. At Landfall Properties, LLC, we don't do this. In the event you have asked Landfall Properties, LLC to hold escrow funds on your behalf, and the transaction is dissolved, we return all escrow deposit funds to you. 100%. Everything. From a seller perspective, this is a nice feature...a very nice feature.
For those of our Landfall Properties, LLC clients operating under our 60 day free listing program, we do not offer escrow services, unless you ask us to do so, and pay for this service on an a-la-carte basis. If you choose to go this route, you will be assessed a nominal $99 charge for this service. Of course, if you have purchased our Premium Marketing Service upfront, for $499, escrow services are included as part of your package. Your other option is to have the buyer brokerage retain the escrow deposit. Does this sound like a good idea? No it doesn't. Why? Because why would you have the buyer's agent be in control of these funds. It simply doesn't make any sense. Want proof? When it comes time to buy your next property, and you're putting down a deposit, why don't you try this: Tell the listing broker that you're going to have your buyer broker hold the deposit. Guess what? They're going to say no. It simply isn't done. By convention, listing brokerages hold the deposit. Period.
For those seller clients of Landfall Properties, LLC that have signed up for Premium Marketing Service, or have paid for this service on an a-la-carte basis, we will manage all aspects of the escrow deposit. If this is the case, buyer brokers will be instructed to have their buyers make escrow deposit checks payable to: “Landfall Properties, LLC Escrow Account”. Deposit checks can be hand delivered to our office (One Tara Boulevard / Suite 200, Nashua, NH 03062), or mailed to same address. Buyer brokers will be provided a copy of the escrow check, along with proof of deposit. At least 72 hours prior to the formal closing, these funds will be released to the closing agent for appropriate disbursement. Buyer brokers will be notified when funds have been released. Funds will be in the form of certified cheque, same as cash.
So there you have it. Sellers, do yourself a favor and negotiate a large deposit. Keep Landfall Properties, LLC in the loop regarding who the closing agent is, and when the closing is to take place. We'll take it from there. Landfall Properties, LLC has never delayed a closing due to late arrival of funds at the closing attorneys office. Funds arrive, as reliably as the sun coming up in the morning at least 72 hours in advance of the closing, to ensure your closing experience is as smooth and seamless as possible.
