Know the Obligations of the Payee to Whom You Write a Check!

9 years ago

In another thread, someone suggested that a seller insist on a large "deposit" from a buyer.

My vastly experienced advice to buyers is:

Do not give a seller a "deposit".

It puts the seller in control,
opens a whole bunch of possibilities for legal problems,
& you may never get your money back.

Even if you're buying from a builder, do not pay a deposit to a seller.

Pay earnest money, pay for your appraisal, pay for your inspection, but do not make a check payable to the seller.

The only exceptions would be if you are going to occupy the house prior to closing, in which you use a buyer's temporary lease & pay such damage deposits & rents as are called for in the lease, or if you were getting possession of the house at closing & your deposit were required to assure the seller that (s)he wouldn't be sitting in a parking lot with a loaded trailer & a brand new lease & no closing.

edited to correct typo.

This post was edited by sylviatexas on Thu, Nov 6, 14 at 12:41

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Comments (5)

jewelisfabulous
9 years ago
In your opinion, what is the difference between earnest money and a deposit?
sushipup1
9 years ago
A deposit/earnest money should only go to an escrow account, whether at a title company or attorney's office (depending on customary procedures where you live.)
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sylviatexas1
Original Author
9 years ago
Earnest money is deposited to the escrow account of a disinterested third party.

Here, it's almost always the title company, but it could be an attorney, maybe some other entity in different states.

The contract & the escrow company determine how the earnest money is to be disbursed if the contract does not close.

*Neither party to the contract can hold the other party's money hostage*.

Here in Texas, the contracts promulgated by the real estate commission have a provision for earnest money & no provision for a "deposit", other than on the buyer's or seller's temporary lease.

If a homebuyer writes a "deposit" check to the seller, what's it for?

to hold the property?
for how long?

to assure the buyer's performance?
If the buyer can't get the loan or can't sell his house or loses his job, what then?

What if the seller defaults?
What if the seller is 5 months behind on the mortgage & cashes the buyer's check & moves out in the middle of the night?
c9pilot
9 years ago
There is a new contract for FL that I haven't checked out yet, so this may have changed, but we had a spot for the "earnest" money that came with the offer, and then a spot for a "deposit" that was to be submitted within so many days after the contract was accepted.
I doubt there is any problem getting the deposit back if the contract doesn't complete, but the earnest money is more wishy-washy. Would be interesting to bring that up with the lawyers.
sylviatexas1
Original Author
9 years ago
If there's a provision in the promulgated contract for a deposit, there's likely protection & procedures in it as well.

To whom is the deposit tendered?