Means to an End (“Eyes on the Prize”)
[Editor’s Note: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway (“Berkshire”), or any other entity referenced. If you need legal advice, please consult an attorney.]
What do you suppose is the best way for a home Buyer to cure their breach of contract, for failing to deliver a timely Written Statement? (Note: a Written Statement is the lender’s representation that the house has appraised, and the Buyer’s loan has been underwritten):
A. Deliver the Written Statement.
B. Amend the Purchase Agreement to extend the deadline (or, remove the requirement).
C. Close the sale.
D. None of the above.
Correct answer: “C.”
Once the transaction closes . . . a Written Statement is moot.
After all, “if it exists . . . it’s possible.”
Translation: if the Seller got their money, it’s all good.
Seller Protection(s) if Buyer Can’t — or Won’t — Close
So, what’s the point of the Written Statement then?
In a nutshell, to protect Sellers in deals where there’s a hitch — or two.
Specifically, Written Statements serve to: 1) to flush out a Buyer who can’t financially perform, relatively early in the process (in Minnesota, typically about 3 weeks after the Purchase Agreement has been signed); and 2) compensate Sellers if the Buyer backs out of the deal, willingly or not, late in the game.
While infrequent, Buyers do change their minds, and decide not to close.
Or, they may lose their job, wreck their credit, or have some other background financial issue that pops up and jeopardizes their mortgage (Equifax fallout, anyone?).
Breakup Fee
A Seller who’s lost 3 weeks — or 8-10 weeks(!) — of precious market time waiting on such a Buyer is genuinely harmed.**
That’s especially true if that chunk of time coincides with the height of the Spring market in the Twin Cities.
Ergo, Buyers and Sellers negotiate, up front, for the Buyer to put up a dowry — called earnest money — that they’ll risk forfeiting if they don’t close past a certain date.
That date (at least in Minnesota)?
The Written Statement deadline.
**In legalese, one of the purposes of Earnest Money is to serve as “liquidated damages” (that is, an estimate of the Seller’s loss) in the event the Buyer can’t — or won’t — close.
