Real Estate Agent Should Return Down Payment Money

Added June 19, 2008 by Ilyce R. Glink and Samuel J. Tamkin

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Summary: After a home sale falls through, a buyer asks about getting earnest money back from a real estate agency. The real estate agency cashed the earnest money check. What can the buyer do to get her earnest money back?

Q: We were buying a home in Michigan and gave the real estate agency earnest money for the home. We were second in line to buy it. Another buyer had made an offer to buy the home and if they didn't close, we were supposed to be given the opportunity to buy it.

The real estate agency said they would not cash our check but would put it in our file. They cashed our check anyway and the original buyers closed on the home. How long does the real estate agency have to refund our monies?

A: The real question isn't when the real estate agency should return your money but why they even cashed your check.

When you buy a home and you use a real estate broker, that broker (or real estate agent) works for you. In some cases that real estate broker may work for the seller or may act as a dual agent representing both the buyer and the seller in a limited capacity.

When you sign a real estate contract to buy a home (a purchase and sale agreement), the earnest money for the home is held by the real estate broker who has the listing for the home. In some cases, the earnest money is held by the closing agent, the escrow agent or other party designated in the contract to hold the money.

But you never even got to the contract stage for the purchase of the home. You submitted an offer and the offer was never accepted. The real estate agency should never have cashed your check.

Most real estate brokerage companies have rules that keep them from accepting money until a deal is signed. You need to contact the managing broker of the office you are working with to demand the return of your money. Most real estate brokerage houses will process the refund promptly. It should only take them the normal time that it takes them to requisition the refund check to you. In some cases, it may take just one day, or it could take up to a week. Just make sure to follow up with them.

If, on the other hand, you were buying a home from a developer or directly from the seller, you have a problem. The real estate company you dealt with did not sign your contract but you made the check for your earnest money to them. They are the seller of the property you were buying, you don't have a contract with them, and they have your money.

Unless there are details from the situation that you have not disclosed, the seller's agent should have no right to your money, and you should demand the return of your money immediately.

The company should process the repayment of your money immediately. If they do not return it to you, contact a real estate attorney as soon as possible. In this real estate market, you don't want to be in a position of having a weak developer going out of business. Then, your earnest money could evaporate into thin air.

June 19, 2008.

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