Yeah, the triviality of the earnest money is the problem. If the buyer who wants to back out doesn’t mind losing this for her mistake, the seller has little recourse.
By possession I assume you mean closing. That’s possession of the title, literal possession might be before or after closing.
Yes, there’s a date when officially the title changes hands, the lawyer or agent fo A passes the money to B (or the mortgager and mortgagee are involved) etc. etc. When the dust settles, the new owner possesses the house, deed, owes their mortgage, etc. The previous owner’s mortgages, liens, etc. are paid off and any resulting cash will probably come as a cheque or transfer from their lawyer’s trust fund once everything is fully tidied up.
It’s not unusual to allow the seller a few extra days to move out, depending on timing, or allow the new owner to take the keys and stat moving things in a little early. But if push comes to shove, the possession/closing date is when the official ownership changes hands.
$500 may or may not be “trivial”. It’s probably something you can afford once or twice, if you have an attack of buyer’s remorse or discover the neighbours are assholes, but it’s certainly not trivial. I assume a good faith deposit of well over $1000 for example, is a polite way of saying “serious offers only please”.
IIRC my offer to purchase allowed 2 weeks to find financing. So yes, a person making a failed offer inconveniences you for 2 weeks, but that’s not the same as the person who takes a month and a half to finish the dealing and then back out. OTOH, how often does this happen in normal real estate? (I don’t know)
Not always. A co-worker of mine had this happen. Sure, they could have sued, but in the meantime the seller had their earnest money, which meant they didn’t have that cash to use toward a new deal.
There has been a lot of theoretical discussion about deposits and liability and so on. Let me give you some practical perspective:
I am currently trying to unload a place I no longer need. It is listed with a real estate agent. I have had about five people sign a contract and put down earnest money on the place. The earnest money ranges from $5,000 to $10,000. All have backed out after a few weeks. One exercised a legitimate contingency clause. The rest just got cold feet or found a better deal.
You are probably all thinking “Wow! You got $20,000 to $40,000 in FREE money!” Yeah, I wish.
When the buyer gets cold feet, his real estate agent pulls out a standard form prepared by the state real estate brokers association. Page 1 says that we both agree to cancel the contract and that I agree to return all the earnest money. Page 2 says that we both release both real estate agents from liability for anything they have ever done up to this point. The buyer’s agent sends this form to the seller’s agent. The seller’s agent sends the form to me and says “sign this, it’s routine.”
The first time I saw this, I was outraged. My agent explained to me that if I didn’t sign it, she would stop trying to sell the place. I have an exclusive contract with her. No other real estate agent will have anything to do with me until the contract expires. You’re all thinking “Sue her!!! Breach of contract!!! Specific performance!!!” It will probably be a year or two until I could get a court hearing and my contract with her will expire well before then. In the meantime, the place will be sitting idle and the local real estate agents’ clique will decline to do business with me.
Yes, I did talk to a local lawyer. He basically told me that locally sellers basically never get to collect the earnest money. The time and legal fees don’t make it worth fighting. And you don’t want to be blacklisted by the agents.
I have seen listings requiring buyer to be prequalified before submitting an offer.
There seems to be a lot of discussion here about hot sellers markets. And lucky you! But for many of us, the market has cooled considerably. I am also interested in hearing about folks that are not dealing multiple cash offers on a home, but rather one offer in 6 months, after two price reductions.
This story is much appreciated. It sucks, because the real estate agents seem to have you over a barrel. What is the point of earnest money if you never collect it? It is a bogus “deposit” if you cannot collect it.
This scenario seems to benefit everyone BUT the seller.
Where I live, there are currently 3 houses for sale that have been for sale for over 6 months (one for well over a year). The house that has been on the longest is in a bad location, and it will be tough to move. There is a large power generator very close to the backyard. The other two, though, are no where near the power station. Now, there may be reasons I’m not aware of that are keeping the homes on the market, but the one closest to me was built after my house and looks to be in great condition. The market here has just slowed to a point where there is more inventory of new homes than usual, and that has give buyers a lot of leverage. They have a lot to choose from.
I doubt many people around here are buying a home with 40% or more in cash. I wish it were so, but alas, I don’t live against either coast, or in a huge tech market like silicon valley.