Dealing with Earnest Money in 2018

by | Feb 23, 2018 | Legal Tips

Last week we posted our concern about the Real Estate Commission’s recent ruling in which it held that if there is any dispute over the release of the earnest money, the real estate agency must get a signed release from both parties or a court order to release the money regardless of the terms of the contract.  Again, this Order flies in the face of the statute which holds that a release is needed when the dispute is “not resolved by reasonable interpretation of the contract.”  As a result of this ruling real estate agents cannot release earnest money even in cases of a failed appraisal contingency, financing contingency or even when exercising one’s rights under the due diligence provision unless they get a fully executed release.

Today fewer and fewer real estate agencies in South Carolina are holding earnest money due to these increasingly troublesome rulings. This however, provides little solace or help to those real estate agents whose agency still holds earnest money.

In this post we examine some ideas to minimize your buyer’s risk in depositing earnest money. First, have your buyer put down less earnest money. Educate your client about the issues with earnest money and tell your client to consider the money spent. If they do not get the full release of money they will not be surprised.  While this strategy ensures that only a small portion of your client’s money is at risk of being held hostage, it may result in your client not getting an accepted contract if the seller has multiple offers with larger earnest money deposits.

Another route to consider is have the buyer put down no earnest money at the time of the offer. Rather the buyer pays the earnest money as additional earnest money upon the completion of the Due Diligence Period. This action will mean your client can terminate the contract during due diligence as intended without the risk of the seller refusing to release the earnest money without cause. However, this strategy also comes with substantial risk. As the agent, you must remember to collect the earnest money upon completion of the Due Diligence Period. If you fail to do so and do not notify the seller agent you could find yourself dealing with a grievance or paying the earnest money deposit in a dispute. Additionally, the seller may not find this offer appealing and may decline the offer. Lastly, this strategy does not address the issue of termination due to financing or appraisal contingencies.

While these strategies may help reduce the risk, no strategy can completely correct this issue until the Commission issues a different ruling.

BLAIR CATO MCE/CE CLASSES:  Our classes for March are completely sold out. Both the April 10 and April 16 classes almost sold out.  Register today to get your class reserved.



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