earnest money deposit Archives - Real Estate News and Commentary

Of the handful of new Maryland real estate related laws that go into effect this week, two are highly important for you to know. These are passed for the purpose of protecting home buyers and sellers. One protects your confidential information, and the other concerns your earnest money deposit on a Maryland home sale.

Protecting home buyers and sellers’ confidentiality is HB1228/SB807, which was effective October 1^st. Besides cleaning up the definition of a brokerage relationship, the bill addresses client confidentiality. Unless a client consents in writing, Maryland licensed real estate brokers and agents may not disclose confidential information received from or about a client to any other party and/or their representative (including their real estate agent). The non-disclosure of confidential information protects past and present clients, and now is extended to potential clients as well.

Confidential information is defined as: a seller/landlord willing to accept less than the listing price; a buyer/tenant willing to pay more than their offer; motivation of a client; the need or urgency to buy, sell, or rent; any facts that led the client to sell, buy, or rent; and also relates to the client’s negotiating strategy. However, the duty to maintain confidentiality doesn’t apply to the disclosure of material facts about a property (which a home seller is also required to disclose).

Protecting home buyers deposits is effective October 1^st. HB222 requires a written agreement between the buyer, seller and the escrow agent holding the earnest money deposit (EMD). The EMD is described as “consideration” for a seller to accept an offer. An escrow agent is the entity who accepts and holds the earnest money. The EMD is credited to the buyer at the time of settlement. However, if sale does not settle, the disbursement of the EMD can become contentious. Under certain circumstances, the contract of sale is clear about when the buyer may receive their EMD. However, real estate is not always black and white, and there are occasions when a dispute arises about whom is entitled to receive the EMD.

It used to be common practice for a real estate broker to accept and hold the EMD. Real estate brokers are bound by law as to how to handle and care for the EMD. However, brokers are increasingly reluctant in accepting EMDs for a number of reasons. Instead, brokers are directing their agents to have title companies to hold these deposits. But home buyers (and sometimes their agents) don’t realize that a title company is regulated differently than a real estate broker, and the EMD may not be handled as expected.

HB222 is important because it fills the gap for escrow agents who do not already have specific guidelines for handling EMDs. (HB222 doesn’t apply to Maryland real estate brokers and agents, and Maryland registered home builders selling new homes, as they are already regulated). The bill provides transparency so both the buyer and seller understand the terms for holding the EMD.

The bill requires an escrow agent to enter into a written agreement with the buyer and seller when the escrow agent agrees to hold an EMD for a Maryland home sale. The written agreement must contain the amount of the EMD; the date the EMD was given to the escrow agent; the responsibility of the escrow agent to notify the buyer and seller if the EMD funds are “dishonored” (e.g., bounced check); the conditions under which the escrow agent may release the EMD; and the process to address disputes over the release of the EMD.

Original article is published at https://dankrell.com/blog/2019/10/28/protecting-home-buyers/

By Dan Krell
Copyright© 2019

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector

Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

by Dan Krell &copy 2009
www.DanKrell.com

Nothing confuses home buyers and sellers more, than earnest money. Simply put, earnest money is given as consideration money for the home seller to accept the home buyer’s offer, to take the home off the market and deter the home buyer from defaulting. For a home seller, the larger the earnest money the better; the home seller will surely be happy with a nice chunk of change deposited as earnest money. The home seller views the earnest money deposit as a possible source of compensation for damages in case of buyer default (but is not guaranteed).

Although the amount of earnest money is negotiated between the home buyer and seller, a home seller may sometimes require a minimum amount of earnest money to be held as consideration for the purchase. However, the amount offered as earnest money varies. Factors often taken into consideration when deciding on an amount to offer as an earnest money deposit includes: the price of the home being purchased and the amount of money the home buyer has available.

Many home buyers have the notion that the higher the amount of the earnest money, the more apt the seller would accept the offer. But this is not always the case. During the huge seller’s market earlier this decade, it was not unusual for home buyers to write very large earnest money checks, sometimes up to ten percent of the sales price! Home sellers required these large amounts as consideration and to differentiate the best offer from the many they received. However, as the market cooled, home sellers were happy to receive any offer – even with a modest earnest money amount.

Earnest money is not used much now to differentiate home buyers. The bottom line for many home sellers (especially for foreclosures and short sales) these days includes the net at closing and ensuring the home buyer completes the purchase. Because buying distressed properties can take longer than a usual sale, many home buyers are deciding to offer low amounts for earnest money so as to not tie their money up for several months.

Most often earnest money is given in the form of a personal check that is often held in an escrow account by the buyer’s broker. Sometimes, the seller requests that their broker or title agent hold the deposit. Additionally, the seller sometimes requests the earnest money be in the form of certified funds (such as a cashier’s check or money order); this is to ensure the funds are available.

If the home sale goes as planned, then the earnest money is credited to the home buyer at settlement. However, the fate of the earnest money is often in question when the sale is not consummated. If the home seller feels that the home buyer is in default, the seller will often try to claim the earnest money; but it is not always easy.

There is nothing more contentious than earnest money in a real estate deal that did not close. If you have questions about the disposition of an earnest money deposit, you should always consult an attorney. If the deposit is held by a Maryland real estate broker, the broker can only distribute the earnest money deposit in accordance with Title 17 Maryland Business Occupations and Professions of the Annotated Code of Maryland 17-505.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 7, 2009. Copyright © 2009 Dan Krell

Category: earnest money deposit

Protecting Home Buyers

What happens to your earnest money deposit?