Real Estate Questions Answered Here
by Art Santellen, REALTOR®
Notice: I'm looking for people who can write. Actually, I'm looking for loan officers, Realtors, real estate agents, insurance agents, title company representatives, appraisers, and home inspectors who would like to share their thoughts in this column. You pick the subject, as long as its real estate related, and fax me your comments. I'll include your commentary in this column. My fax number is 548-9475. Or, you can send your thoughts to Bill Green c/o Hispania News. Bill can be reached at 540-0220.
Browsing the internet I ran across your web-site. I've got a real estate question for you.
Q: We made an offer on a home, which was accepted. We are using the same real estate agent as the seller is using. I wanted to put a contingency regarding us being able to sell our house. We didn't want to get stuck paying for two houses. He talked us out of putting that in there. Said we wouldn't have any problem selling it.
He had me give him $5,000. I don't know if this is typical in this area, but it is a lot more than what I am used to having to put down. Usually $500 to $1,000 is normal. He had me sign the contract without giving me time to read what I was signing. If our house does not sell, and we can't take the other, does that mean he or the seller get to keep the $5,000? I feel like he should have listened to what I wanted to put in the offer to purchase regarding contingency. I feel he was looking out more for the seller the was for us.
A: You need to talk to an attorney. I cannot give you legal advice, nor can I discuss your particular situation. However, I can talk about real estate contracts (in general), the purpose for earnest money, and types of real estate agency (kind of).
A person who needs to sell their home in order to purchase another should be up front with the seller of the home they want to buy. The buyer (you) should disclose to the seller that you cannot, or do not want to pay two mortgages. In most cases, a lender for the new purchase will not approve a home loan if the previous home remains unsold. Mortgage companies will use the old mortgage payment as debt against you. Most people cannot purchase another home unless their previous home is sold. So, a buyer in that situation should disclose that fact to the seller of the next home. This is typically done in the sales contract as a "contingency."
Earnest money could also be called, "sincerity" money. In other words, the seller uses earnest money to determine just how sincere the buyer is about going through with the real estate deal. It is the buyer's money, held by the seller, seller's agent, an attorney, title company, closing company, or disinterested third party. It is accounted for at closing by crediting the buyer's side of the settlement sheet in an amount equal to the earnest money.
So, it is the buyer's money to be used to cover some of the buyer's closing costs.
In Colorado, earnest money can be lost in a couple of ways. The most common way if for the buyer to get cold feet and back out of the deal. The second way is for the lender to tell the buyer that they're not going to get the home loan they need to buy the property AND the buyer fails to notify the seller by the Loan Commitment Deadline set forth in the sales contract. In both cases, the buyer is in default of the contract and, depending on the language in the contract, could be sued for Specific Performance (the buyer could be court ordered to buy the property) or Liquidated Damages (the buyer looses their earnest money).
In those cases where it's hard to determine if the buyer was in default of the contract and both buyer and seller believe they ought to keep the earnest money, there are special earnest money courts of law. Usually, in Colorado, both buyer and seller have previously agreed to mediation before suing each other. The result of the mediation hearing is usually enough to settle who keeps the earnest money.
Earnest money amounts can range from 0 dollars to several hundreds of thousands of dollars. In Colorado Springs, the amount of earnest money appears to be linked to the purchase price of the home. Sellers of homes under $120,000 usually ask for $500. Over $120,000 up to about $200,000 may ask for $1,000. Sellers of homes over $200,000 will ask for more. I have negotiated sales where the earnest money is paid at closing. After all, it is money to be used to help pay the buyer's closing costs. I have also negotiated sales (apartment complexes) where half the earnest money was paid at the beginning of the contract; the other half was paid 30 days down the road. Sometimes a portion of earnest money will go "hard." That is, it becomes non-refundable to the buyer. The important
point is that the amount of earnest money is a negotiable issue.
Well, this brings me to agency relationships. Remember that I'm not an attorney but I paid close attention to this subject in real estate school. After many years in real estate practice, I have come to the following opinion: buyers and sellers should have their own real estate representation. Yes, the state of Colorado (and many others in the nation) makes allowances for dual agents or transaction brokers or real estate facilitators.
These people work to keep the deal together and are not supposed to hold more loyalty to one side or the other. Having been at the center of these types of real estate transactions, I can tell you that's a tall order for any Realtor or real estate licensee. Nope. I'd rather work for one side or the other.
Working for one side or the other fosters trust, confidentiality, and loyalty. It allows you to ask your questions to your real estate agent rather than some Hispanic know-it-all in cyberspace.
If you feel you have been wronged, I suggest you contact the real estate agent's employing broker or the local association of Realtors. I also suggest you always read contracts before signing them and avoid working with people who won't give you that opportunity. That rule also applies to car dealers, insurance agents, and employers. Finally I also suggest you contact an attorney. Thanks for your email.
2nd note to my readers. This email was sent to me back in March. I purposely avoid answering questions like these in a timely manner because I don't want to get sucked into a lawsuit. You all have my office number(s). I encourage you to call me BEFORE you get into trouble. I can act as your lender, real estate agent or I can refer you to other lending or real estate professionals. Yes, even to good attorneys.
Next week, another question about buying/selling real estate and getting a home loan which I promise to answer next week, right here, in Hispania News.
Art Santellen is a licensed real estate professional with Intrepid Realty in Colorado Springs.
News Flash: Art is also a Home Mortgage Consultant with Wells Fargo Home Mortgage!! If you have a question you'd like answered, please send them to Art care of Hispania News PO Box 15116, Colorado Springs, CO 80935. You may also send your question directly at Art via email at ASantellen@hotmail.com. Or call him at his Wells Fargo Office: (719) 381-1114.
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