The problem with deposits

Sometimes it doesn’t matter if your Realtor® is Moses, sellers can be unreasonable.

For example, in a recent case, sellers wanted a deposit of $75,000 on the purchase of a small shopping plaza. This is a terrible idea for any buyer because today no brokerage can release a deposit without BOTH the seller and buyer agreeing to sign a mutual release and termination.

Which means an unreasonable seller can simply decide not to sign the mutual release and termination simply because “they don’t feel like it.”

So how does a buyer get his or her money back?

They don’t.

What the heck?

Nope. It sits in the real estate brokerage’s trust account ‘til the sun burns itself out unless the buyer sues the sellers in court, is successful, and gets a COURT ORDER forcing the brokerage to release the darn deposit. Or they negotiate from a weak position, made weaker because of this one-sided regulatory rule.

I had a client in Toronto who had to give up half (half!) her deposit to the sellers to get (part of) her money back because the sellers said, “We don’t think she tried hard enough to fulfill her conditions,” even though the agreement said it was up to her in her “sole and absolute discretion.”

As long as you make reasonable efforts to fulfill your conditions, you should be able to get out of any agreement.

For example, suppose you have a financing condition. And you get an offer to finance the deal at say an interest rate of 4.99%. The fact that you got an offer, any offer, is not by itself sufficient. You might not like 4.99% because you were hoping for 2.99%. So in your sole and absolute judgment, this offer (of finance) was unacceptable because, maybe, you cannot afford 4.99%; that is, you had budgeted for 2.99% instead.

But to unreasonable sellers, they can say (incorrectly) that because you got any offer of finance, in their opinion, you should have waived your condition/provided them with a notice of fulfillment of condition.

In litigation, no matter how “right” you think you are, there is always a risk of a judge finding against you.

It’s a terrible, lopsided system, weighted in favor of sellers.

If I had my druthers, I would write in deposits of $2 on all my agreements… because of this.

What’s the solution?

Well, I told my Toronto client NOT to sue; instead she had her attorney register her notice of termination and mutual release on title as well as her APS (agreement of purchase and sale) at a cost of about $150 in legal fees so the sellers could not sell or remortgage their property without first dealing with this “lien.”

Sure enough, they sold their property a few months later, and, when their lawyer discovered this issue on title, and after a temper tantrum, the sellers were more willing to negotiate. Still, my client lost half her deposit having done nothing wrong.

The moral of this story?


Prof Bruce

Bruce M Firestone, PhD, Century 21 Explorer Realty Inc broker


ps then on to the next thing!

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