I want to know if a real estate agent is entiltled to give earnest money to a builder if deal was cancelled?

Question

Contract on house purchase was not able to be funded and deal fell thru. $1000 earnest money was given to real estate agent. Agent kept earnest money and gave it to the builder. There was nothing in writing about paying any of builders costs or changes that he had made. Changes were very minimal,nothing that would keep the house from being sold to someone else. I have bought several houses and have never run into a situation like this. I have written and sent certified letter to real estate agent, but so far it has done no good. Any one every run into anything like this?

Answer 1

Legal process for releasing Earnest Money.

1) Buyer and Seller sign Termination and Release agreement, on which they agree to who is entitled to the earnest money.

If Buyer and Seller do not agree

2) Holder of earnest money, in your case the real estate brokerage, makes a decision based on contract to who is entitled to the earnest money. Before releasing money broker must first send a 15 day letter, which states the intent of the broker and offers opportunity for parties to dispute decision.

Broker has option to..

3) Allow buyer and seller to settle dispute in court.

This is the process in GA, TN, NC

If you have reason to believe that it was not handled correctly, I would speak to a lawyer and see if you are right. You can also put pressure on the broker and put in a complaint to your states licensing board as they don't take kindly to the mishandling of trust funds.

Answer 2

The Realtor isn't the one to hold the earnest money. The title company does. If it's a new home, the builder possibly owns the title company, so you can say the builder holds the earnest money.
Your contract has to say under what conditions you would receive your earnest money back and under what conditions you'd lose it.

It may hinge on why the deal couldn't fund. If it was because it would not appraise for enough, I'd expect them to return the money. If it was because you ended up not qualifying, then it depends..... Was there a time frame by which you had to qualify? Did you buy something big on credit (car, fridge, boat) that caused your debt to income ratio to change? (some sellers will view this as "sabotaging" the deal, as it is something that you should know to not do...)

All in all, the Realtor representing you should be able to at least get to the bottom of it, request that the $ be returned, and explain the reasoning to you.

(Is the "agent" involved your Realtor, or the site salesperson?)

Answer 3

In most states the agent is not entitled to give the earnest money to a builder or anyone else, without the buyers and sellers signed approval. I have not read your contract, therefore I can only give you a general opinion. Read your contract carefully to see what it says about the earnest money.
If upon the sale falling thru, you are to receive your money back, then go to the agents local real estate board. Most agents belong to one.
Failing this, have your attorney give you a final say on the matter.

John Carr
Broker
Royal LePage Real Estate
Johnston & Daniel Division
Toronto, Ontario.

Answer 4

Great advice so far. In a nutshell, it depends on the speficis of why you cancelled and the specifics of the contract you signed. If you the deal "couldn't fund" because you got cold feet, then the seller is likely entitled to keep the earnest money. If it didn't fund because you couldn't qualify for a loan that met the specifics of the contract, there might be grounds to return the earnest money.

State laws vary tremendously so be sure to include what state you are in so you get more specific advice.

Answer 5

First, check with your state board of real estate. They can tell you specifically how disputed escrow funds are handled.

In Florida, The money should not have been released without you and the builder first signing a cancellation of contract. The cancellation would spell out who gets the deposit money back. If either party did not agree with the disbursement of funds then it would be up to the realtor to file an escrow dispute with the state authority. They would then decide who was entitled to the money.

Like I stated, this is for Florida but I'm sure the laws are similar in other states. If proper procedures were not followed, then the realtor may be liable for the money.

Answer 6

Did the deal fall through due to something that was addressed in the contract?

For example, many real estate contracts provide that if the buyer can't get financing, he/she may can cel the contract and have the earnest money returned.

If you backed out simply because you couldn't pull it off (and were not protected b a clause in the contract), well, that's exactly what the earnest money is there to protect.

Answer 7

I'm not exactly sure what you are asking, but the point of earnest money is to ensure that you don't back out. Thus, if you do back out, the earnest money goes to the seller. If you were the one who backed out of the deal, then you should lose the earnest money.

Answer 8

According to Investing Without Losing, a real estate investment guide, it all depends on the contract. If you didn't put in an escape clause, you're doomed on this deal.