"If sale doesn't close, can money be refunded in FSBO deal?"

by Maureen McCabe on August 30, 2007

Warning Jargon

In his Inman News column on Thursday, August 23, 2007 Robert J. Bruss had a question from a buyer buying a home that  is being sold by an unrepresented seller (FSBO for for sale by owner.)

“Home buyer’s deposit check cashed too early

If the sale doesn’t close, can money be refunded in FSBO deal?”

DEAR BOB: Can a home seller use the buyer’s earnest money good faith deposit to make repairs to the home and not tell the buyer? Or is the deposit used only at the closing? I am concerned because we are purchasing a “for sale by owner” house and I noticed the lawyer already cashed our check. Is this “normal” for the seller to get our money before the sale closes? –Tonya G.

DEAR TONYA: No, it is not “normal” for the home seller to receive the buyer’s deposit money before the sale closes. For your protection as the buyer, you should make the deposit check payable to the firm that will be handling the closing of the sale.

Unless you made the deposit check payable to the seller, the seller should not be able to obtain those funds until the sale closes and the title transfers to you.

If the lawyer is holding the deposit funds in his trust account, that’s fine. However, if the seller has your money and, for some reason, the sale never closes, getting your deposit refunded could be a big problem, especially if the seller spent the deposit money.

Your situation shows another danger of buying direct from a home seller without the benefit of an experienced real estate agent to protect both parties.”

Cashed too soon?  I think Bob real estate guru that he is missed a couple of points here… or maybe it is that whole real estate is local thing along with “READ the contract.”

Check cashed too soon?  In Central Ohio, the check would have been cashed if it was being held by a real estate company, a title company, the seller  or an attorney.  Are there places in the country where the uncashed check sits in the file until closing? 

The purchase contract contains all the terms of who holds the money.

While I love Bob Bruss and I certainly love the line

 ”Your situation shows another danger of buying direct from a home seller without the benefit of an experienced real estate agent to protect both parties.”

this column puzzled me.

I think I worked with a buyer a few years ago who bought a home that was not listed and the seller insisted on holding the earnest money.  It was not in the buyers best interest but I believe he agreed to it.  As small as earnest money is in Central Ohio, it is not going to pay for a lot of repairs anyway. 

As a buyer you and your earnest money are protected by the terms of the standard language in the CBR (Columbus Board of REALTORS®) contract.  Typically the earnest money is held in the escrow account of the real estate company working with the buyer in a transaction in Central Ohio.  They can’t just hand back the buyers money though… it’s all spelled out in the contract.

The CBR contract advises buyers and sellers to seek legal representation.

Contact me today.  I’ll handle the details.

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columbusbestblog.com » Blog Archive » What is Earnest Money?
September 7, 2007 at 12:39 am


1 Liz Provo, Editor/Publisher August 30, 2007 at 08:28 am

I am the publisher of a regional for sale by owner magazine in Western Massachusetts. As I read the question, it seems that “Bob” painted the seller as unscrupulous (just another one of those pesky unrepresented sellers!) looking like he took the money and ran, when in fact it appears to me that the lawyer (real estate attorney) representing the seller, deposited the check in his/her escrow account. Although I am not an attorney and cannot provide legal advice any more than a real estate sales person, the contract should spell out the terms under which the buyer may or may not get their deposit returned should the sale not close.

In our area, any deposit taken at the point of an offer or when the purchase and sales contract is signed, (the amount is more like 5% or more), is generally held by either the seller’s attorney in escrow and is perfectly NORMAL. The comment, ”Your situation shows another danger of buying direct from a home seller without the benefit of an experienced real estate agent to protect both parties” has little relevancy. A real estate agent is not an attorney.

I cannot speak for all private home sellers, but I can say that most of our advertisers (home sellers) follow our recommendations of: 1) contact an experienced real estate attorney as soon as you know you will be selling by owner, 2) have your home appraised by a Massachusetts licensed residential real estate appraiser in order to know its true market value which will help you negotiate from a position of strength and will more likely be approved for financing, and 3) consider having a pre-home inspection performed by a Massachusetts licensed home inspector if there are structural issues that may come up later.

Call them FSBOs or “unrepresented sellers”, the fact of the matter is that consumers are finally beginning to understand that the real estate transaction has been made far more complicated than it is.

2 MaureenMcCabe August 30, 2007 at 09:15 am

Thanks for the comment Liz. For lots of sellers and buyers it is a lot more complicated than throwing up a sign and putting an ad in a publication such as yours. Of course there are markets and homes where a sign and an ad is all it’s going to take to get a particular home sold, more power to the seller!

Gee I don’t think “Bob” is at all confused about a real estate agent being an attorney. I bet he’s come to know the difference over the years.

I don’t think “Bob” portrayed the seller to be anything. He says very little about the seller at all. I certainly read no defamation of the sellers character or FSBO’s in general.

I don’t think “Bob” could have all the facts from what Tonya asked. Tonya thinks the seller has the money. Tonya may be totally mistaken. There could be more to the story. “Bob” expressed an opinion, it’s his job as a real estate columnist.

My point was in my market (this is a blog about Columbus) the check would be cashed, but the contract tells a Tonya (the buyer) where the money is, what the sellers rights are, what the buyers rights are.

Our earnest money locally is a lot less than 5% typically so it is not going to go far in making repairs… but I made that point in the entry

Your counsel to sellers is certainly interesting (even if you are NOT an attorney) and are just advertising properties rather than doing things that take a real estate license…. but Tonya is a buyer. Tonya is a buyer seeking info from Bob Bruss.

At least in my market she could have a real estate agent looking out for her interest, she could have an attorney, she could have an inspection. Tonya thinks the sellers are using her funds to make repairs to the property, so she must have had a home inspection or there were repairs requested in her purchase contract.

Tonya has choices. She’s made choices. No one defamed the unnamed seller. It’s really not about the seller, it’s about the buyer and her perception of what is going on in HER transaction

Sorry I had to remove your link. It made your comment look so much like comment spam it ended up in my spam filter.

3 Reeses Peanut Team August 31, 2007 at 10:21 pm

To address Liz’s comment that the transaction is “not complicated” … I’ve only sold one home with an unrepresented seller. It was a near disaster for the seller.

They didn’t thoroughly read the contract and missed that they were to pay $4000 in closing costs for the buyer. They didn’t counter our initial offer. Earnest deposit was held by my broker. The sellers didn’t consider or understand what their closing costs would be and what their Net Equity would be because they didn’t have an agent to run those estimates for them.

When they got a copy of the HUD the day before closing, they learned they had to bring over $5500 to closing. Since they had stupidly closed on another home the week before, they had to contact relatives to come up with the money to avoid owning two homes. They brought the $5500 to closing in CASH bills!

My buyers got a great deal because they used a Realtor®. The sellers lost big time because they decided to be unrepresented.

4 MaureenMcCabe September 1, 2007 at 07:26 am

Thanks for the comment Elaine. It boils down to read the contract. .

5 Sean Mandolini May 27, 2010 at 02:04 pm

It is great to have the ability to read a good quality article with useful data on topics that plenty are interested on. The point that the data written are all first hand on actual experiences even help more. Go on doing what you do as we like reading your work.

6 home inspections August 25, 2010 at 12:23 am

I don’t know about the refund thing, but I do know that you should get a home inspection. It can and will save you money in the short and long run.

7 Maureen McCabe August 26, 2010 at 09:54 am

There’s plenty of home inspection posts on this blog that your comment would have seemed less out of place and called attention to the fact you are nothing but a spammer. I removed your spammy link and am putting that and the email address you used into moderation.

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