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How Do I Get My Earnest Money Back?

July 4, 2011 By Leave a Comment
Money

MoneyEarnest money is often a source of mystery to buyers. How much is enough? What happens to it? And most importantly, how do I get it back if things don’t work out?

At the time an offer to purchase a home is written, several things are required to travel along with it on its journey to the listing agent and their clients. One of these is a preapproval letter from your lender. Another is a copy of the check for the earnest money you will put down as a deposit on the purchase. The amount is totally up to you, but that amount can become part of the negotiation with the seller. In general, a larger earnest money deposit is looked upon as a more serious offer than a trivial amount. And of course, larger deposits are expected on more expensive homes.

One of the first things that happens after your offer is accepted is that the earnest money check is deposited into an escrow account. This a holding account that keeps the money in a safe place until the purchase is completed and escrow closes. It is legal for that escrow account to belong to a broker, but in Northern Nevada, the vast majority of the time the earnest money is deposited with a title company. They keep the deposit as an independent third party, and disperse it in accordance with directions provided to them.

If the purchase is completed as we all hope, that money becomes part of your down payment on your new home. On the other hand, if the escrow falls apart, then it is a different story. Provided we have kept to all our timelines and the cancellation of escrow is based upon a legitimate contingency, there is no problem having it returned to you. However it still requires that cancellation instructions be signed by all parties and delivered to the title company. This is where things often get bogged down.

Even though we only have a couple of days to get the money deposited after we all sign the contract, there is no such time constraint on getting it back. The title company will not release the money without proper authorization; that is why they have it in the first place, to assure that everything is in order before it is released. So we must sign and send the cancellation instructions to the listing agent, and badger remind them until they have their client sign. If the client has moved away, or is difficult to reach (think short sale or divorce here), it can be awhile. Even worse, if the cancellation is contested by the seller for any reason, they may refuse to sign and then things can stretch out much longer. Worst case scenario, lawyers become involved and then there is no telling when or if your money will be returned.

So the moral of the story is contract terms, especially with regard to time frames, are important. We aren’t trying to rush you, but some things, such as inspections, review of the preliminary title report, review of the CC&Rs, etc. must be completed by certain dates. This is for your protection, and to assure that there can be no argument about your earnest money deposit being returned to your wallet if things go awry.

Photo credits: Money by AMagill from Flickr via Creative Commons License

 

Filed Under: Featured Articles, Home Buyers Tagged With: ,

Not All Distressed Homeowners Are Pie-in-the-Sky Purchasers or Equity-Sucking Pigs

June 9, 2011 By Leave a Comment
Pigs

On the subject of the current real estate crisis, there is a school of thought that goes something like this: People who are in trouble with their Pigsmortgages either bought way more house than they could afford or else refinanced one or more times, using the equity in their homes to buy toys or take vacations. In other words, that all of these people are greedy, irresponsible ignoramuses, living beyond their means with no personal sense of responsibility, clueless or uncaring about the consequences of their decisions. They deserve to reap what they have sown. Wow!

I just read and commented on a post by Elliott Topkins: Basic Misunderstandings About the Benefits of Foreclosure. He has a more charitable view of the underwater homeowner, one I think should be at least considered by those espousing the sentiments above.

Now I won’t argue that there were some people that behaved in that manner at the time. But I would argue that they had a lot of help and encouragement from those that stood to profit from their choices. Bank representatives going door to door in places like inner city Detroit urging people to do cash out refis, mortgage brokers that assured buyers that they could refinance their POS pick-a-pay loan as soon as their home value went up, etc. etc.

But overlooking those people for a moment, what about the endless masses caught in the downdraft? Many, many prudent people are now trapped in their homes. Some of them have lost what were previously secure jobs until the economy went in the toilet. Others are forced to move by circumstances beyond their control. Many developed serious illnesses, obviously through no fault of their own. Even the most forward-thinking, contingency-planning person doesn’t plan their life around the possibility that they may develop pancreatic cancer, for example. Anyone who thinks that insurance takes care of it all hasn’t made a claim on an insurance policy lately.

In the olden days of five or six years ago, these people might have had to make the hard choice to sell their home; at least that was an option. Now, selling may very well be impossible, certainly in the traditional manner. How is that their fault? These are people who sincerely want to do the right thing, stay in their home or not, but get on with their lives with some dignity intact. Slamming them with insulting labels and refusing to help (HAMP is window dressing at best, an opportunity to extort the last dime out of strapped homeowners at worst) does nothing to move us through a black period in both real estate and banking.

Filed Under: Distressed Properties, Featured Articles, Foreclosures / Bank Owned / REO, Home Sellers, Short Sales Tagged With: ,

“Pending” Status – What Does That Mean in the Northern Nevada Market?

June 8, 2011 By Leave a Comment
First-Time Buyer

First-Time BuyerIncreasingly, prospective Northern Nevada home buyers are beginning their property searches on the Internet. This is a good thing for the most part. Many buyers feel more comfortable and in control getting a feel for the market in the comfort of their own homes before spending time venturing out to contact a Realtor® and actually look at houses. In particular, buyers new to our area can get a feel for the different Reno and Sparks neighborhoods they may be considering in terms of home sizes and types, nearby amenities, and price ranges by spending some quality time online. I have even had buyers call me up and say “We have been watching the market for months, and this is the home we want to buy!”

The downside of do-it-yourself searching is the need to learn a bit of the lingo of the business. Not a huge downside, but an important one if you want to understand what you are seeing. One of the most common areas of confusion I find is when listings are indicated as “pending”. In Northern Nevada, “pending” means that an offer has been written by a buyer that has been accepted by the seller. Does that mean it is game-over on that property? Maybe, but not necessarily. “Pending”, like ice cream, comes in different flavors and some taste better than others:

  • Active-Pending Short Sale (APSS) – Buyer and seller have agreed on price and terms in writing, are said to be “in contract”, but must have approval of the sellers’ lender(s), who must agree to accept less than they are owed from the proceeds of sale. The property may or may not be available for showing for back-up offers.
  • Active-Pending Loan (APL) – Buyer and seller are in contract, but the contingency of the buyer obtaining a loan has not yet been removed. As above, may or may not be available for showing for back-ups.
  • Active-Pending House (APH) – Buyer and seller are in a contract that contains the contingency that the buyer’s current house must be sold in order for them to purchase this one. An APH contingency is extremely rare in our current market. In this case, the seller may be very receptive to a back up offer which they can use to force the issue, and you might be successful if the current buyer is unwilling or unable to release the home sale contingency.
  • Active-Pending Call (APC) – Again, buyer and seller are in contract, but some contingency has not yet been met that doesn’t fit into one of the other categories. The listing agent requests a phone call to discuss the status. They may be feeling shaky in terms of keeping this deal together and hoping for new interest, or they may just have stuck the listing into this category for lack of a better spot.
  • Pending-No Show (PD) – All contingencies have been released and the deal is proceeding toward closing. This one is pretty much a done deal, forgetaboutit.

With the wealth of inventory available in our market, many buyers prefer to limit their visits to homes that are “Active”. Occasionally however it can be worth a call from your agent to the listing agent to see how strong they feel their current contract is if the home is exactly what you are looking for. For example, many short sales go through multiple contracts with multiple buyers for a variety of reasons before actually closing with one. This is one area where a Buyer’s Agent dedicated to representing you can help you sort through the confusion and move forward toward a successful home purchase.

Filed Under: Featured Articles, Home Buyers Tagged With: , , , ,
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