Is the Buyer Short of Cash? Not Committed to Deal?
[Editor’s Note: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced. If you need legal advice, please consult an attorney.]
Normally in Minnesota, the Buyer’s earnest money is due to the Seller (actually, the trust account of the Seller’s Broker) within 2 days after there is a consummated Purchase Agreement.
So, in my capacity as a listing agent (representing the Seller) this Fall, my eyebrows went up when I saw a clause, shoehorned into the Purchase Agreement, delaying the transfer of the earnest money.
My knee-jerk reaction(s): the Buyer’s short of cash; they have undue inspection concerns; and/or they lack commitment to the deal.
Or perhaps(?) the motivation is more tactical, to give the Buyer added leverage negotiating any inspection issues that come up.
Yellow Flag or Red Herring?
So, which was it?
At least according to the Buyer’s agent, the explanation was that the Buyer had a short window to purchase a home, and wanted to be able to move on to another deal, quickly, if their deal with my client hiccupped (note: it can take as long as 10 business days for the Buyer to get their earnest money back if a deal cancels).
Umm . . . OK.
In fact, the Buyer wanted a very fast, one month closing — consistent with the above.
After carefully qualifying the Buyer with their lender, and making sure that the deal’s other terms (Written Statement deadline, down payment amount, Inspection timeline, etc.) protected the Seller, I advised my Seller that the additional term seemed innocuous.
They agreed, and signed the Purchase Agreement with the delayed earnest money provision included.
Moot Point
What happened next?
The Buyer’s inspection uncovered 2-3 straightforward issues that the Buyer and Seller timely resolved, after which the deal’s MLS status was changed to “Pending” — and the Buyer delivered the earnest money.
In other words . . . never mind.
P.S.: Such a provision is very common in short sales, where Buyers have to wait up to 6(!) months to find out if the lender(s) have ratified their deal — and don’t want to cough up the earnest money until they find out.
But, in straightforward traditional sales, such a clause is likely to unsettle Sellers.
Which is why I’d discourage its use, especially if the Buyer thinks they may be competing for the home.
