No deposit? Amend the agreement

True or false: Deposits are essential to bind the parties to an agreement of sale. And the answer is true and false, sort of.

A deposit is not essential to create a binding agreement. Even without a deposit, the buyer has a right to enforce the agreement of sale by suing for specific performance. Likewise, a seller has the right to sue a breaching buyer, even one who has paid no deposit, for the full purchase price. That is, unless the seller has agreed to limit his remedies upon buyer default, which is clearly what most sellers do when they sign the PAR agreement.  When listing agents allow their sellers to sign agreements with a checkmark in the box limiting their sellers’ remedy to deposits paid, they have done just that. Why?  Well that is a story that will fill another article.

 

While not a legal necessity, a deposit is what holds the buyers feet to the fire. For that reason it is standard fare in the real estate community.  Many of you have never seen an offer that is not accompanied by a deposit. Or have you?

Modern practice makes liberal use of the email transmission of offers and of acceptances. The problem is that while technology may permit payment via the Internet, it is not happening with respect to deposits. Instead, the agreement of sale may be passed electronically, signed electronically, or printed, signed and scanned. The deposit check will then follow hours or days later.

The problem is that the signed agreement of sale likely provides for a deposit “at the signing” of the agreement. It has not!  And this creates risk for all.  Risk to the seller that the buyer will walk before the deposit is tendered, in which case the seller has recourse if that box is checked in the default clause. Keep in mind that the liquidated damage clause provides that the seller may retain sums “paid” (past tense). Because it provides that seller may keep sums paid and not sums that should have been paid, the seller gets nothing.

And there is risk to the listing agent who allowed her seller to accept an agreement that clearly states that a deposit was paid at the time of signing when it was not. And risk to the buyer agent whose deal is now unraveling. Additionally, the buyer and listing are at risk for disciplinary action by the Real Estate Commission because they allowed their clients to sign a contract clearly stating that the deposit has been paid when it has not. And yes, licensees have been prosecuted for this very offense.

Avoidance is easy. If the deposit does not accompany the offer, amend the agreement to show that the deposit is to be paid in the future on a date certain or within a specified time. Amending the agreement necessitates the additional step of having the revision initialed by all parties. The problem is more easily avoided when buyer agents draft the agreement accurately to begin with.

By James L. Goldsmith, Esq