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When Not to Seize a Home Buyer’s Deposit

When might you not want to seize your buyer’s deposit money?

Real estate transactions are falling apart more frequently than ever today whether due to difficulties in getting financing, trouble with appraisals or buyers discovering the home needs more work than they thought. If a buyer for one of your real estate investing deals backs out for a reason not covered in your contract or within the appropriate time limit you could be entitled to keep their earnest money deposit. But should you?

Can You?

First consider whether you really can ‘seize’ the deposit. Home buyers are a lot smarter than they used to be today and most know better than to make a deposit directly with a seller or the seller’s agent or attorney. If your side doesn’t have control of the money it may be incredibly tough to get your hands on it.

What will it Cost in Legal Fees?

If the buyer wants to put up a fight and dispute your claim to their cash, which they will in most cases the legal process could simply tie up the funds in escrow for years until one party runs out of money to pay their legal fees anymore. Needless to say that even if you win you could end up forking over more to pay your attorney than there is to win.

What will it Cost in Bad Publicity?

Some might say that there is no such thing as bad publicity but while that might work for Hollywood actors it rarely transfers well to the business world. Being slammed in the news for taking some poor home buyers money in such tough times definitely won’t do wonders for your reputation, especially during times when individuals are already so untrusting of real estate professionals.

What will it Cost in Terms of the Lost Deal?

Before you go after the deposit, even if you are able to get it and the buyer has no right to complain make sure you calculate how much you will really get and if it is worth it. Will you have to break off a slice for the escrow firm or a real estate agent from that check?

Then analyze whether it is worth re-writing the deal to make it work even if you don’t have to. If you are making $10,000 and can make it work by cutting the sales price by $2,000 that may be a lot better than looking for a new buyer and incurring more holding costs.

Finally put yourself in the buyer’s shoes and ask whether you would like someone to do the same to you or cut you a break. That you can put a positive spin on, perhaps gain positive free press on and at least win referrals as a trusted professional.

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