Release of Earnest Money

Below is a short yet insightful portion from the latest Texas Association of Realtors (TAR) newsletter.  It covers a frequently asked question regarding the release of earnest money in a transaction.

Question: My client is a buyer who has given the seller a timely, written notice that he is terminating his contract to purchase the seller's home under the termination option of the contract (Paragraph 23). The seller is upset and will not sign the appropriate form releasing the earnest money to the buyer. What can the buyer do to get his earnest money


Answer:  The buyer could make a written demand under the provisions of Paragraph 18 of the TREC contract. That paragraph provides that the escrow agent will be released from liability by each party to the contract if the escrow agent disburses the earnest money upon the written demand of one party where the other party does not object to that disbursement in writing within 15 days after notice to the other party is given by the escrow agent.

While this provision covers only those situations where the other party does not object in writing to the disbursement or has not made a written demand for the earnest money, following this procedure might result in the escrow agent releasing the earnest money to the buyer. If the seller were to make a written objection to the disbursement or make a written demand for the earnest money, the buyer would have written evidence to substantiate the seller's wrongful refusal to release the earnest money. This might make it easy for the buyer to recover the liquidated damages stated in Paragraph 18: three times the amount of the earnest money, the earnest money, reasonable attorney fee’s and all costs of suit.

Although the amount of earnest money involved in any given transaction may not be very substantial, the losing party in any suit litigating this issue under the provisions of Paragraph 18 could end up losing far more than just the amount of the earnest money held by the escrow agent.

For other legal topics, visit the Legal FAQs on www.TexasRealtors.Com.

Be mindful of your emotions

While it is important that we remain energetic and confident as we work with clients, it is also extremely important that we remain conscious of our emotions before, during, and after each transaction.

To illustrate, I would like to share with you an article I recently read on this topic.  The article was written by Katherine Tarbox, Senior Editor of REALTOR® magazine.  It is brief and to the point, taking all of about three minutes of your time, yet it identifies five areas you can focus on to keep your emotions balanced: Appreciation, Autonomy, Affiliation, Status, and Roles. 

Again, a short, useful article.  It is the copyright of the National Association of Realtors (NAR) and it is being posted here with their permission.

Don't Let Emotions Ruin Negotiations

Representing clients in real estate transactions may not be quite as emotionally charged as handling hostage negotiations or helping warring nations diffuse long-standing conflicts, but there are parallels. During his Entrepreneurial Excellence remarks at the 2009 NAR Conference & Expo, Daniel Shapiro, director of the Harvard International Negotiation Program, identified important ways that misunderstood emotions can hinder real estate negotiations.

"Clients often move because of major landmarks in life—divorce, marriage, birth, death. Even when those life events aren't involved, there may be financial stress or fear of committing to a property," Shapiro says. "It's best to be removed from those client emotions."

Shapiro says practitioners should focus on five core emotional concerns in client dealings:

Appreciation: Do you let your clients be heard? Do you really listen to their concerns and what they are looking for in a property? If you don’t appreciate your customers and they don’t appreciate you, then you’re creating bad business. Autonomy: Allow your client to make the important decisions. He believes lines such as “Buy this house now” will push clients away. They need to be in the driver’s seat in terms of the purchase or sale while practitioners provide expert advice.
Affiliation: When meeting with a new client or co-worker, try to create common ground with them with at least three shared connections. Did you go to the same school? Root for the same sports team? Enjoy a common restaurant?
Status: Don’t act like you’re always “on top.” Take turns with your client in terms of who’s leading the relationship. When showing homes, you can lead by being the driver. When getting close to making the sale, let the client lead. Don’t get competitive about maintaining the higher role.
Roles: Practitioners need to play different roles through the process: housing expert, emotional consultant, devil’s advocate, and more. Make sure you recognize your changing role in order to fulfill your clients’ variety of needs.

For Eddie Perez, GRI, an associate broker with Robert De Ruggiero Inc. in Hoboken, N.J., the main takeaway for the session was the importance of appreciation. “I’m in a negotiation right now where the other practitioner is not responding to my counteroffer for a sale. I believe if I told her that I understand her seller’s position, I would have a response. I’ll take a step back now when I negotiate.”

—Katherine Tarbox, REALTOR® magazine

Gather Up Your Posse

Perhaps one of the most important things a brand new agent can do as soon as he/she is licensed is to start putting together a group of trusted people in a number of fields directly related and critical to success in the real estate arena.  There is no need to wait until there is a new buyer or seller under contract, as a matter of fact, it's best to work ahead and have the right network ready for when the day comes.

Lenders, title companies, property inspectors, insurance agents, locksmiths, etc....are all entities that in the great majority of cases will be involved in a real estate transaction.  Some more than others, but they will all will have a direct impact in how smooth or how rough a transaction will be.  And although the task of building your network is not necessarily a complicated one, it is not something that can be accomplished overnight or that should be overlooked as a lower priority.  I am fully aware that there are people out there that completely disagree with my opinion on this subject, but stop for a moment and give it just a few seconds of consideration.  Are you REALLY ready to get your first listing if you have NO IDEA what title company you will use once you have an executed contract?  Are you REALLY sure that you want to use ABC Title simply because Sally said that "she used them a couple of times in the past and had no problems"????

The truth is that anyone, your broker, other agents, Google, etc. can give you a list of vendors for whatever specialty you are looking for.  Most brokerages have so-called "in-house" or "preferred" vendors, and that is perfectly fine.  But I strongly encourage you to do your homework and exercise due diligence as you are building your trusted network.  Think of conversation starters-----open-ended, probing questions that you can ask anyone recommending a vendor:

• What in particular about this company do you feel is better than in the others?
• When was the last time you used them on a transaction and how many times have you worked with them over the last 6-12 months?
• If there is anything that you wish that this vendor would improve on, what would that be?

Once you have done this with enough people and have begun building your list, you should meet with each person you are considering (and by the way, they would love nothing more) at least once for a few minutes.  Super Sally may get along great with Sensible Susan but you may feel that she is extremely rude and condescending.  You don't want to find that out AFTER you have sent her your executed contract and have opened title, do you?

And just because you have several years of experience under your belt and have a long-established network of great professionals you can depend on, you shouldn't forget about continuing to keep that list fresh and validated.  People in every field change careers, work habits, and areas of coverage every day.  Your top inspector might have moved to El Paso and your most reliable closer might have retired two months ago.  Your trusty loan officer, once hard-working and dependable, might have lost her touch and not done so well over the last couple of deals you sent her.  Do you have replacements ready if you land a new contract tomorrow?  You don't?  Well then, it must be time for you to-----Gather Up Your Posee!

Quick!!! Put out an A.P.B. on the "Date of Execution"

Okay, okay...I realize that maybe not everyone is aware of what the term "A.P.B" stands for. If you look it up at popular source Yahoo! Answers (www.yahooanswers.com), you will find that an All Points Bulletin (APB) is "a broadcast issued to several law enforcement agencies, containing information about a wanted suspect or person of interest who is to be found and/or arrested."

You will hear such terminology used in just about any police/detective show on television. Effective today, I am officially, unilaterally, making it also a real estate term. Why, you ask? Because by far, the top, undisputed issue I find when reviewing the contracts sent in with each sale is contracts missing a date of execution. I would estimate that approximately 2 out of every 5 sales contracts come in this way:

Perhaps you are wondering why this matters at all, why I'm even bothering to post on this subject. I'll tell you why, but first let's go over why this happens in the first place.

Say you represent a buyer, and after dedicated negotiations with the listing agent, you reach an agreement. You make the last set of updates on the contract and your clients sign all the paperwork that you then forward to the listing agent for the sellers' signatures. The listing agent collects their signatures, but somehow forgets to enter a date of execution in the contract. The agent then sends you a copy, and you are very busy informing your client about the next step in the process, taking the earnest money to the title company, etc., so you don't notice that the date of execution is missing from the contract.  Or perhaps you notice that the execution date is missing, but after all...isn't that the listing agent's job???

Still, you ask, why does this matter so much???? We have a signed contract, we're moving forward with inspections, everyone is happy, so who cares?  I care because I happen to know a guy by the name of Murphy who likes to show up at the most inopportune times and under the worst of circumstances.  Hopefully you also know Murphy and are familiar with Murphy's Law.

Murphy's Law says that if the date of execution is missing from the contract, chances are high that one of the following scenarios will take place:

• A major problem is identified during the inspection and the buyers want to terminate the contract.  When you go present the termination and request the release of earnest money, the listing agent informs you that you are too late to terminate, that the option period expired yesterday.  By your accounts, the option period expires today.  Who is right?
  
• Six days after receiving the signed contract, you complain to the listing agent that you still have not received the Seller's Disclosure Notice, and that they were supposed to provide the Notice within five days of the agreement.  According to the listing agent, today is the fifth day, but according to you, today is the sixth day, and thus you feel that they didn't meet their obligation as identified in Paragraph 7.b.2 of the contract.
  
• Your clients' lender informs you that they cannot obtain financing.  You present the termination and request the release of earnest money and the listing agent informs you that although the buyers may terminate for this reason, they are not entitled to the earnest money because the Third Party Financing Condition period has passed.  By your calculation, your clients had until tomorrow to terminate and receive their earnest money back.  Now your clients are upset with you because they lost their earnest money and you had told them they would be protected by the Financing Addendum.
  

In every one of these scenarios the confusion and disagreements reach such level that the issue is invariably escalated to the broker.  If I am the broker, guess what is the very first question I ask?

What is the contract date of execution?

Why?  Because without a date of execution it's pure guesswork to try to identify a correct timeline that all parties involved can agree upon.  On the other hand, if you have a date of execution, then it's extremely easy to identify the timeline and sequence of events.  It should be black and white, plain and simple, non-emotional.

In a normal sequence of events after an agreement is reached, the listing agent should write in the date of execution and then communicate to the selling agent that the contract has been executed and what that date is.

However, if for some reason that does not happen and you receive the signed contract with the date of execution missing, please, take the initiative and immediately contact the other agent to coordinate a prompt correction.

Unless, of course, you prefer to take your chances with Murphy's Law or wait for me to issue an A.P.B. for the elusive Date of Execution!

FAQ - When should I send you my executed contracts?

Question:
Do you want me to send a copy of every contract that is executed? I have had quite a few that terminated during the option period and am not sure if I need to send them all to you. I am almost reluctant to send them all, it seems to be too much paperwork. Also, what is the best thing to include in the subject line to make it easier for you to identify? I have no idea what your procedure is for handling all these once they are received.

Answer:
Yes, please, email or fax us a copy of all contracts that are executed. Even if the contracts end up being terminated during the option period, we still need them in our files in case anything comes up later. Our requirements is to have all contracts in the office files within 7 days of contract execution.

In the subject line of your email, I suggest you enter: “Executed Contract – 123 Main St. – Agent Angie Franks”. When we receive these documents, I review them for completeness and accuracy, and our Office Manager files a copy in our online records.

Set Clear Expectations

One of the most important things we can do anytime we begin a client-agent relationship is to take the time to identify the expectations that our clients have for us and for the service we will provide to them.  This is true in any type of transaction or function, whether we are representing sellers, landlords, buyers, or tenants, commercial or residential.  It doesn’t matter what our level of expertise may be or how successful we might have been in the past with a similar type of client and/or transaction.  We simply cannot assume that on the very next instance the expectations are going to be the same.

For example, imagine that you are eagerly looking forward to your initial meeting with a listing referral.  You prepare your listing presentation after doing your homework estimating the property’s value and have a suggested listing price ready to discuss with the owners.  You meet, the presentation is a smashing success and so you get the listing.  A short 5 days after going through the motions of uploading it to MLS, taking photos, etc. your clients call you, and you immediately sense that they are upset.

What’s the matter???  Everything was “peachy” just a few days ago, you listed the house immediately at the requested price, the professional photographer did an outstanding job with the photos…what could possibly have them upset?

“Well, Mr. Agent, why haven’t you called us with any news?  Five days have gone by and we haven’t heard from you!  We thought you would stay in touch with us frequently.  Is the house listed already?  Has there been any interest from anyone?  Are there any showings scheduled at this time?  You certainly don’t expect us to call and ask you for this information every couple of days, or do you?”

This is a classic example of people being upset as a result of failure to discuss expectations.  You typically email your listing clients on Sundays giving them a summary of activities with their property, and your last three listing clients seemed happy with that system. So, you assumed that these new clients would be the same.  But the truth is that they simply hate email and would much rather get a phone call from you, in the evenings, every other day.  You wonder why they didn’t mention that during the listing presentation, because truth be told, you would never agree to have to call them that often!  Still, you ultimately recognize that everyone is different and in the end, they are your clients.

What do you do now?  Well, whether you end up making them happy by agreeing to call them every other day or if you lose the listing because you refuse, that doesn’t really matter for the purposes of this post.  What matters is for you to be aware that with each and every client, BEFORE you have dedicated any significant amount of time and money, you must ask the question, “What are your expectations of me and of my services?“  Further, you can expand, “What is your preferred method of communication?”,  “Do you prefer that I call you on your cell phone, home phone, or work phone?” , “On what days and what times can I call you?”, “I prefer to communicate through email, is that ok with you?”, “How often should I email you with updates, and what things would you like me to include?”, “Can you describe for me your idea of “outstanding service from a real estate agent?”.  These and many other probing questions can be asked to get your clients to open up and clearly communicate their expectations of you.  The sky’s the limit in terms of the amount of questions you ask.  As a matter of fact, most clients will appreciate you taking the time to learning about them and listening to their ideas and expectations—they will feel that you truly value them for who they are as individuals and not like “just another client”.

Realize that by going through this process you may conclude that you do not want to work with these clients or that you simply cannot meet their expectations.  It may be that they expect you to show them properties at times that you are either completely tied up with another commitment that you can’t or don’t want to break.  And although deep down you want and/or need their business, the truth is that you (and your clients) are better off if you, recognizing the mismatch, either refer them to someone else or politely decline to represent them for those reasons.

Setting clear expectations will not guarantee stress-free transactions and/or misunderstandings between you and your clients, but doing so will certainly increase the possibilities of you having happier, satisfied clients at the end of each transaction.  Happier, satisfied clients bring referrals and repeat business, and if you have that, well, you’ve got half the battle won.