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March 20, 2018 • Stay Connected!
         

QUESTION:  Buyer broker called me, listing broker, to say that the buyer would double his earnest money if seller would extend the closing date. Without a financing contingency, would doubling the earnest money help my seller in any way, if we fail to close?



ANSWER:  Listing broker needs to help seller understand the value and vulnerability of "earnest money" so that seller can make a decision that benefits seller. Earnest money is held, in trust, by a third party (probably escrow) who will not release the EM without the consent of both parties. If buyer puts additional money into the EM deposit, and seller is ultimately entitled to recover the EM, seller will still have to have buyer's consent to release the EM to seller and without buyer's future consent, seller will have to litigate to recover the EM. It may be that buyer will readily consent to release of the EM, if and when that circumstance arises, so that this issue will present no difficulties for seller but seller should be made aware of the possibility that even with a large EM, seller's benefit may be limited if buyer fights release of the EM to seller. If the EM is released to seller, then certainly, the doubling of the EM will have benefitted seller.
 
The fact that there is no financing contingency may be an indication that if buyer is unable to close, seller will have the right (even if litigation is necessary to prove the right) to forfeit the EM. But, that is not necessarily the case. Listing broker and seller should be careful to insure that buyer does not have some other excuse for buyer's performance of the PSA. For example, does buyer have any other contingencies? Has seller fully complied with the Seller's Disclosure Act and has buyer's right to terminate based on that statute been exhausted or waived? The same question should be asked of the Lead Based Paint statute.
 
Additionally, seller is prohibited from forfeiting EM in excess of 5% of the purchase price. There is no indication as to how this EM compares to the purchase price but broker and seller should be aware of that issue. If the EM will exceed 5% of the purchase price, then seller must seek the assistance of seller's lawyer to draft the forfeiture provision. A forfeiture provision for more than 5% of the purchase price is possible, but not using standardized language. That outcome requires a specialized provision that broker is not licensed to draft.
 
Finally, with respect to EM, seller must understand that increased EM does not enhance seller's outcome if the sale closes. If the sale closes, seller will receive the bargained-for purchase price at a date later than the originally agreed closing date. While there may be a benefit if buyer fails to close, there is no benefit to seller if buyer closes.
 
If, what buyer and seller are actually attempting to accomplish with this new negotiation, is buyer's "purchase" of a closing date extension, then buyer and seller should negotiate for and document a closing date extension supported by payment of consideration to seller for the extension. That would require an addendum that establishes a new closing date in exchange for $X. The language would have to be drafted by broker so that the fee for the closing date extension would be due and payable to seller at the time seller grants the closing date extension. Buyer would lose those funds whether buyer closes the transaction or not and those funds would constitute a payment to seller in excess of the originally negotiated purchase price. There is no standardized form for this so broker will have to draft the form. Moreover, buyer will be committing unrecoverable funds to seller prior to seller's full performance of the purchase agreement, which is always a risk to buyer.
 
Listing broker should help seller to understand all of the pros and cons associated with this request from buyer and this negotiation over a closing date extension. If seller is unable to give broker clear instructions as to how to proceed following this discussion, then broker should advise seller, in writing, to seek legal counsel.  

 

The Legal Hotline Lawyer does not represent Washington REALTORS or its members. To browse through our database of past Q & A's, visit www.warealtor.org. Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. Please submit questions to legalhotline@warealtor.org . Please tell us your NRDS number when you e-mail the Hotline with your question.



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Primary Mortgage Rates Survey
(updated every Thursday)  Source:  Freddie Mac
 
 March 15, 2018    30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  4.44%  3.90%  3.67%
 Fees & Points  0.5
 0.5
 0.4
 Margin  N/A  N/A  2.75



 March 8, 2018   30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  4.46%  3.94%  3.63%
 Fees & Points  0.5
 0.5
 0.4
 Margin  N/A  N/A  2.75



 March 1, 2018       30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  4.43%  3.90%  3.62%
 Fees & Points  0.5
 0.5
 0.4
 Margin  N/A  N/A  2.75



 February 22, 2018  30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  4.40%  3.85%  3.65%
 Fees & Points  0.5
 0.5
 0.4
 Margin  N/A  N/A  2.75



 February 15, 2018  30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  4.38%  3.84%  3.63%
 Fees & Points  0.6
 0.5
 0.4
 Margin  N/A  N/A  2.75




 
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