In our last episode, the clever real estate agent, sensing the commission on $26,500,000 was nicer than $12,000,000, deftly steered his clients to the more expensive house, even though they had signed contracts and put down 10% of the purchase price on the cheaper place!
So they walked away from $1,200,000??
Well, actually, yes, in this case, it happens to be true, those buyers really did walk away from $1,200,000. The part about the broker “deftly steering them”, well, I made that up. What actually happened (I think) is that the deal sat around too long, the seller hemming and hawing, delaying and waiting, while trivial closing details were worked out. Eventually, the contract got signed and exchanged, but by then, so-o-o-o much time had gone by that the buyers became susceptible to a new idea.
Remember this catchy phrase: “Time is the enemy of the deal”.
In the previous example, the money was big, and so were the players. Despite what my brother, Chris Fountain says, there is honor among Wall Streeters. When those guys give their word, they don’t back out. That buyer backed out, but he had the honor (and the bucks) to walk away from the deposit, he did the right thing.
What about a more normal circumstance? You’ve made a deal to sell your shack for $1,000,000, contracts are signed, and you now hold the buyer’s 10% ($100,000) deposit. The next day, the buyer announces he’s not going through with it, he wants his deposit back. Can you keep it? Yes!
But maybe no.
The law Previous court decisions have determined your requirement to attempt to mitigate your damages. If another buyer shows up two days later and offers you the same $1,000,000, you’ve suffered no damages, and buyer number one gets a full refund. On the other hand, if six months goes by, and you finally, finally make a deal, but it’s only for $900,000, well then, congratulations, you get to keep the previous buyer’s deposit in its entirety!
Buyer walks, demands return of his 10% deposit. Before you can keep it, you must show that you made every effort to MITIGATE YOUR DAMAGES. The dollar amount of the damages you suffered from the breaking of that contract is what you can deduct from the deposit amount. If another buyer shows up (soon) and offers the same deal, you must give back the deposit.
I am guessing your brother the lawyer might have a deeper understanding of this issue. I think it is still possible to keep the whole deposit if somebody else shows up a day later and pays the same price. The seller still maintains risk and uncertainty. The way you suggest is like an option. Again, if you are good natured you can do what you feel is right but, I hardly think you are legally obligated to return any of the deposit unless you violate language of the agreement or it is hashed out that way.
You should have been a lawyer…
The deposit is paid in consideration for the seller taking the property off the market for a specified period of time. If the buyer backs out, the seller has completed his end of the bargain and should be entitled to keep the deposit. I’m not so sure that you’re understanding of the law is correct,
Ok, now TWO of you readers are questioning my “understanding” of the law! Tell ya what, you sound like a nice fellah, so for you? I’ll post a recent CT court decision on this topic. Stand by.