Q: We are about to move out of state. The home we bought closes escrow in one week. This morning, our Bay Area property homebuyers issued a cancellation notice and are demanding the release of their earnest money deposit. We refused. We have a contingent-free transaction. The purchase contract states we can keep the 3% earnest money deposit should the homebuyer default. Not so, according to our seller’s agent. The homebuyers put 1% of the sales price in the escrow account within one day of acceptance. The homebuyers wired another 2% of the sale price into escrow on day five. All parties agreed to this written arrangement. However, we have a problem. The buyer’s agent did not issue the proper realty form to accompany an additional earnest money deposit. The seller’s agent we hired did not either. According to our seller’s agent, we can only keep the homebuyer’s 1% earnest money deposit. What options do home sellers like us have to be made whole?
A: A “contingent-free” home sale — or “You can keep the homebuyer’s earnest money deposit” — are common statements and equally problematic. A prominent Bay Area real estate attorney always references “all the moving parts of a real estate transaction.” The facts in your case will justify a cancellation. You did not mention why the homebuyers are canceling. That matters. Legal loopholes are what real estate attorneys seek. During the pandemic there has been an epidemic of contingent-free home sale cancellations in the white-hot real estate market in Silicon Valley. That makes sense to industry insiders. Fast or sloppy property listings or home sales result in legal disputes over the earnest money deposits.
Consult a real estate attorney before you resell your home. If you have staggered earnest money deposits in the future, and your current home is on the San Francisco Peninsula or western Silicon Valley, use the PRDS Receipt for Increase Deposit (Liquidated Damages Agreement). Otherwise, employ the California Association of Realtors’ Delivery of Increased Deposit and Liquidated Damages Addendum.
Questions, concerns or inquiries? Realtor Pat Kapowich is a Certified Real Estate Brokerage Manager and career-long consumer protection advocate. His hometown of Sunnyvale, California, is where he is based. Office Landline: 408-245-7700, [email protected] Broker# 00979413 www.YouTube.com/PatKapowich