Real Estate: Earnest Money Deposits

An essential component of any purchase agreement to buy or sell real estate requires the buyer to provide a deposit “in earnest”, to demonstrate the seriousness and legitimacy of their offer. It also serves as a signal to the seller how much the buyer wants the home or how indifferent the buyer may be if their offer is accepted or not. This is a detail which helps to show a position of financial strength, as well. A hefty earnest money deposit can speak volumes to a seller and could be especially helpful to distinguish your offer from any other competing offers. It also prevents buyers from taking properties off the market by writing offers on more properties than what they can move forward on while unnecessarily disrupting a seller’s market exposure.

The timing of when the collection and receipt of the earnest money will be made is negotiable but once agreed upon by both parties becomes a binding condition. If you have agreed to provide your deposit upon the acceptance of your offer you will want to ensure it is received by the acting trustee in the agreed amount of time, or your agreement will automatically become voided if not received during that time. When agreeing upon a timeframe make sure that your logistical plans to deliver or mail the check to the trustee will comply with your agreement.

Discuss with your REALTOR how much earnest money you should plan to give as a deposit with your offer on a property and if more than one deposit should be provided. In the State of Maine claims which are valued at $6,000 or less may be handled in small claims court, which is a more simple and speedy process than civil court required for claims greater than $6,000.

It is negotiable who will hold the earnest money deposit acting as trustee and this will be agreed upon by both parties in the purchase agreement. In Maine often the listing or selling real estate company will act as trustee by depositing the check into the company’s escrow account. It may also be held in the trust account of the title company or law office who will be handling the closing and transfer. If it is held by a real estate company in Maine they must comply with the rules of the State of Maine Office of Professional and Financial Regulation Maine Real Estate Commission as well as follow their company policy. A personal check may be accepted for this typically in the range of 1 percent to 5 percent of the purchase price for an already existing home and new construction may require a greater amount. These funds may be applied towards the purchase price then the remainder can be paid by wire, certified cashier’s check, or trust account check on the day of the closing.

Your REALTOR will help you to understand the circumstances, if any, which your earnest money

deposit may be returned or refunded to you. Earnest money provided directly to a seller, or a builder may be non-refundable. Your broker will also assist you by closely monitoring the critical dates which you must comply with according to your purchase agreement to maintain this option. A common misconception is that a release of earnest money happens automatically given the right conditions.

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How the disbursement of earnest money will be handled in the event your purchase agreement is terminated or made void is addressed in your agency relationship agreement and in the terms of the purchase agreement. If the funds are being held by a real estate agency as the trustee, it may be the policy of the company to retain a portion of the buyer’s earnest money deposit in the event of a cancellation. The trustee may also require that both the buyer and the seller sign a written release agreeing on the amount being released and to which party funds be released to. Should one party not agree to signing the release because they do not agree with whom the funds will be released to or the amount being released, then there is a dispute. In the event there is a dispute of the release of earnest money small claims court and mediation services are available to the parties to reach a resolution.

Most of time when a purchase agreement falls apart it is very straight forward how the earnest money will be released and usually all parties are cooperative with the next steps to part ways. It is important to be aware there can be more than one interpretation of both contract language and the events surrounding the termination so that we not take that cooperation for granted. <

Nicole Foster is a Broker with Locations Real Estate Group and a Windham parent who loves real estate and people.

By Nicole Foster, Broker/ REALTOR