Cancel escrow, get deposit back?
October 21, 2023 11:13 PM Subscribe
We want to cancel escrow and get our deposit back. Can you help us figure out how to have the best chance at getting our deposit back?
We are in escrow for an as-is property in California. There is (or was, we haven't heard about it in a while) one backup offer. We are well past our contingency period.
Our personal circumstances have changed, buying is no longer a good idea. The deposit is a lot of money to us. We want to go to our inexperienced real estate agent with a plan to back out and try to get our deposit back.
What do we need to say and do to have the best chance of getting our deposit back?
We are in escrow for an as-is property in California. There is (or was, we haven't heard about it in a while) one backup offer. We are well past our contingency period.
Our personal circumstances have changed, buying is no longer a good idea. The deposit is a lot of money to us. We want to go to our inexperienced real estate agent with a plan to back out and try to get our deposit back.
What do we need to say and do to have the best chance of getting our deposit back?
If your circumstances have changed and you can't get a mortgage (assuming you are not an all cash buyer) then, as firechicago said, "Lawyer".
posted by andreap at 7:13 AM on October 22, 2023 [6 favorites]
posted by andreap at 7:13 AM on October 22, 2023 [6 favorites]
I wonder if the seller would be willing to provide you with the name of the backup offer people so you could possibly make a deal with them (if you’re past your contingency period with no other option). You’d probably still lose some money, but maybe not as much depending on the amount of your deposit. (I am not a real estate person and this might be a dumb idea, but I was just thinking if I was that other party and still interested, I could see trying to work something out.) Lawyer either way as suggested is probably your best bet.
posted by Glinn at 7:55 AM on October 22, 2023 [1 favorite]
posted by Glinn at 7:55 AM on October 22, 2023 [1 favorite]
Have you talked to your agent? My understanding is that the seller can't accept another offer while they are still holding your deposit in escrow. So you will get your money back at some point.
Data point: I backed out of a house in Ohio and got my escrow money back. And I had someone back out of a deal in Oregon, and they'll get their money back as well.
posted by hydra77 at 7:59 AM on October 22, 2023 [1 favorite]
Data point: I backed out of a house in Ohio and got my escrow money back. And I had someone back out of a deal in Oregon, and they'll get their money back as well.
posted by hydra77 at 7:59 AM on October 22, 2023 [1 favorite]
You may want to talk to a real estate lawyer.
posted by theora55 at 8:28 AM on October 22, 2023 [1 favorite]
posted by theora55 at 8:28 AM on October 22, 2023 [1 favorite]
I would have your realtor reach out to the seller's realtor and ask about the feasibility of a friendly cancellation of the escrow. Sob story might help, depending on who the seller is.
posted by bluesky78987 at 8:32 AM on October 22, 2023 [4 favorites]
posted by bluesky78987 at 8:32 AM on October 22, 2023 [4 favorites]
I'm no expert, but I do have a keen interest in real estate and have been involved in the buying and selling of a few houses. You might find this helpful. Basically, you should read your contract to find out what you signed. You can obviously get a lawyer, but I think it's pretty clear that the first step should be reading the contract to see what you're working with. Your position is somewhat analogous to the situation if the sellers decided at this stage that they didn't want to sell their house.
As firechicago mentions, since you are past the contingency period, I believe there is some possibility the sellers can sue you to complete the sale (or sue you for damages?). You should read the contract you signed to see if it mentions damages being limited to the sellers keeping your earnest money. If so, that's a good thing, as it means you can't be compelled to buy the house. Getting back your earnest money may be trickier, if the sellers aren't amenable. As a counterpoint to hydra77's, my in-laws ended up going through with a house purchase that they had decided they didn't want to go through with, in large part because the sellers wouldn't return their 10k earnest money if they backed out. This actually is exactly the situation that the earnest money was collected to address - to heavily incentivize the consummation of the house sale that was already contracted. I'm not saying this to make you feel bad, but simply to agree that your position here isn't a great one; your leverage isn't high; and you might want to try to negotiate for less than the full amount back if the sellers don't offer to return all the earnest money, as my understanding is that you don't have a right to any of it back.
Apart from any local and state regulations, my sense is that the outcome of this is going to depend on the seller's goodwill and their sense of how quickly they can get another buyer at the same price. They may simply offer to return the money. In order to maximize that chance, I personally would tug at the heartstrings. If I were a seller, and my buyer were backing out, I think I'd be most willing to return the earnest money if I heard a genuine account of the personal circumstances that led them to need to back out (in other words, a sob story). So I'd have your realtor talk to theirs to feel it out, and to present your story. If the sellers refuse return of the earnest money, perhaps you could try to strike a deal to get, say, 2/3 or 1/2 of your earnest money back. Perhaps you could address any concerns by saying that you'd agree only to take back your earnest money if they can't find a buyer at the same price within 2 weeks, or something. I'm just suggesting to think creatively about what might motivate you if you were in their shoes.
If your inexperienced realtor works with a more established company, he/she might be able to bring on someone more experienced to advise on this - someone who has dealt with a similar situation in the past. This might be worth asking for.
posted by ClaireBear at 8:41 AM on October 22, 2023 [3 favorites]
As firechicago mentions, since you are past the contingency period, I believe there is some possibility the sellers can sue you to complete the sale (or sue you for damages?). You should read the contract you signed to see if it mentions damages being limited to the sellers keeping your earnest money. If so, that's a good thing, as it means you can't be compelled to buy the house. Getting back your earnest money may be trickier, if the sellers aren't amenable. As a counterpoint to hydra77's, my in-laws ended up going through with a house purchase that they had decided they didn't want to go through with, in large part because the sellers wouldn't return their 10k earnest money if they backed out. This actually is exactly the situation that the earnest money was collected to address - to heavily incentivize the consummation of the house sale that was already contracted. I'm not saying this to make you feel bad, but simply to agree that your position here isn't a great one; your leverage isn't high; and you might want to try to negotiate for less than the full amount back if the sellers don't offer to return all the earnest money, as my understanding is that you don't have a right to any of it back.
Apart from any local and state regulations, my sense is that the outcome of this is going to depend on the seller's goodwill and their sense of how quickly they can get another buyer at the same price. They may simply offer to return the money. In order to maximize that chance, I personally would tug at the heartstrings. If I were a seller, and my buyer were backing out, I think I'd be most willing to return the earnest money if I heard a genuine account of the personal circumstances that led them to need to back out (in other words, a sob story). So I'd have your realtor talk to theirs to feel it out, and to present your story. If the sellers refuse return of the earnest money, perhaps you could try to strike a deal to get, say, 2/3 or 1/2 of your earnest money back. Perhaps you could address any concerns by saying that you'd agree only to take back your earnest money if they can't find a buyer at the same price within 2 weeks, or something. I'm just suggesting to think creatively about what might motivate you if you were in their shoes.
If your inexperienced realtor works with a more established company, he/she might be able to bring on someone more experienced to advise on this - someone who has dealt with a similar situation in the past. This might be worth asking for.
posted by ClaireBear at 8:41 AM on October 22, 2023 [3 favorites]
I'm not sure hydra77 is right that you will get your money back at some point because "the seller can't accept another offer while they are still holding your deposit in escrow". Perhaps it varies by location/jurisdiction, but my understanding is that if you back out of the sale, your escrow money is released to the seller for him/her to keep (see here). The earnest money was in fact collected for that purpose. This isn't to say that some sellers won't be nice and give you back your earnest money, especially if they think they can get another buyer quickly, but that hasn't been our experience unfortunately. My in-laws thoughtlessly put down way more earnest money than they needed to, on the bad advice of their realtor, and it really burned them. Many sellers don't actually look hard at the amount of earnest money when they accept an offer, so my recommendation for the future would be to put down as little as is reasonable unless it's a very hot market: you should consider that, worst care scenario, you might lose any earnest money you put down (unlikely, but as you've seen, within the realm of possibility).
As I said above, I'd read your contract first and then chat with your realtor, but I think your only recourse at this stage is sob story, and if that doesn't work, attempted negotiation with the seller to see if they will give you a portion of it back. I don't think your sellers really have any incentive here other than goodwill, though, unless things are different in California.
posted by ClaireBear at 9:02 AM on October 22, 2023 [4 favorites]
As I said above, I'd read your contract first and then chat with your realtor, but I think your only recourse at this stage is sob story, and if that doesn't work, attempted negotiation with the seller to see if they will give you a portion of it back. I don't think your sellers really have any incentive here other than goodwill, though, unless things are different in California.
posted by ClaireBear at 9:02 AM on October 22, 2023 [4 favorites]
I suppose, if you're really legally stuck, you could try to find a buyer to buy you out. If you got a great deal, maybe you could even turn a profit.
I realize that you've probably already thought of that, and if it was a good idea, you might not be asking this question. Still, I thought I'd mention it just in case.
posted by amtho at 11:20 AM on October 22, 2023
I realize that you've probably already thought of that, and if it was a good idea, you might not be asking this question. Still, I thought I'd mention it just in case.
posted by amtho at 11:20 AM on October 22, 2023
My guess is that even if there was a back-up offer, offers always have a time clock built in and it may well have expired with the end of the contingency period. Also, the backup offer may not have been for as money as your offer (which was their first choice). Which is to say that the seller may not easily be able to go to a second offer when your deal falls through.
Some things to think about:
What is happening in your local real estate market? Is it a hot market or a slow one? Prices rising or falling?
How much would it cost the seller (mortage payments and taxes) is the sale is delayed by 60 days while they find and close with a new buyer? How does that compare to your escrow money?
How much would it cost you if you bought the house and immediately put it back on the market remembering that sales often slow in the winter months although each market is different? Do you think it would sell for more than you paid for it? Enough more cover both the cost of owning the house and the cost sale?
Not saying don't give it a try but these answers will help you think through it from the seller's perspective and/or make walking away from the escrow $ seem like the least bad option (maybe)
posted by metahawk at 11:37 AM on October 22, 2023 [2 favorites]
Some things to think about:
What is happening in your local real estate market? Is it a hot market or a slow one? Prices rising or falling?
How much would it cost the seller (mortage payments and taxes) is the sale is delayed by 60 days while they find and close with a new buyer? How does that compare to your escrow money?
How much would it cost you if you bought the house and immediately put it back on the market remembering that sales often slow in the winter months although each market is different? Do you think it would sell for more than you paid for it? Enough more cover both the cost of owning the house and the cost sale?
Not saying don't give it a try but these answers will help you think through it from the seller's perspective and/or make walking away from the escrow $ seem like the least bad option (maybe)
posted by metahawk at 11:37 AM on October 22, 2023 [2 favorites]
One reason your seller (or, more realistically, your seller's agent) might not let you back out of the contract is the perceived stigma of a relisted house, even with a disclaimer of "through no fault of the owner." Also, not sure about the law in California, but in NC a re-listing seller is obligated to disclose any issues found by a buyer's inspection, even on an as-is sale.
posted by Sweetie Darling at 11:57 AM on October 22, 2023 [2 favorites]
posted by Sweetie Darling at 11:57 AM on October 22, 2023 [2 favorites]
I got my deposit back and I backed out the day I was supposed to sign the paperwork and make the down payment.
The thing is I did nothing, my realtor (who had greatly misled me about an aspect of the unit that I had told him me buying it on was contingent) reached out to the seller and did everything. I think the reasoning was they wanted to keep my business or at least not complain about them publicly. So I would talk to your realtor and if they work with an agency talk to them, there’s a way to do it.
posted by lepus at 2:28 PM on October 22, 2023
The thing is I did nothing, my realtor (who had greatly misled me about an aspect of the unit that I had told him me buying it on was contingent) reached out to the seller and did everything. I think the reasoning was they wanted to keep my business or at least not complain about them publicly. So I would talk to your realtor and if they work with an agency talk to them, there’s a way to do it.
posted by lepus at 2:28 PM on October 22, 2023
I was thinking about this a little bit further. If you actually mean "back-up offer" rather than "second-place offer" - i.e., that the sellers actually accepted a second offer as back-up, rather than simply that there was a second offer that they rejected - then I think that really might be worth pursuing. With the caveat, of course, that in a hot market the backup offer folks obviously may have already put in another offer on another property, so they may no longer be interested in the property in question. I also don't know whether backup offers expire, or any of the other logistics of them. But I think if your realtor speaks with the seller's agent and they won't simply return your earnest money, it might be worth introducing the back-up offer into the mix.
Presumably the seller chose your offer because it was more attractive than the backup offer. So you may need to make some concessions in order to get the seller to go with the backup offer (if the backup offer is still feasible at this point). Perhaps you could pay the difference between the two offers with your earnest money? Other issues might be harder to sweeten the deal for (the other buyers being in a weaker financial position, cash sale vs mortgage, inspection vs no inspection, etc.). Still, it seems to me that if there is/was an official back-up offer on the table, it may well be fruitful to explore that. This doesn't change my initial advice about first presenting a sob story and asking for the earnest money back; but if that doesn't work, I think it's worth looking into this.
posted by ClaireBear at 5:43 PM on October 22, 2023
Presumably the seller chose your offer because it was more attractive than the backup offer. So you may need to make some concessions in order to get the seller to go with the backup offer (if the backup offer is still feasible at this point). Perhaps you could pay the difference between the two offers with your earnest money? Other issues might be harder to sweeten the deal for (the other buyers being in a weaker financial position, cash sale vs mortgage, inspection vs no inspection, etc.). Still, it seems to me that if there is/was an official back-up offer on the table, it may well be fruitful to explore that. This doesn't change my initial advice about first presenting a sob story and asking for the earnest money back; but if that doesn't work, I think it's worth looking into this.
posted by ClaireBear at 5:43 PM on October 22, 2023
I have been a real estate attorney for more than 30 years (I am not YREA). Some of the advice above is misleading. The fate of the deposit is not very complicated.
First, read your contract. The contract will say who is holding the deposit and what happens to the deposit if the buyer doesn't close. This will vary from state to state and often from county by county, but - as a general rule - once all of the contingencies are satisfied and the buyer does not close through no fault of the seller, the deposit would be forfeited to the seller. Depending on what your contract says and the law of your jurisdiction, the seller can also come after a buyer for any losses that exceeds the amount of deposit. For example, if you agreed to pay $500 for the house and you put up a $10 deposit but don't close, the $10 would go to the seller. If the seller later sells the house for $450, you (the original buyer) could be liable for an additional $40 ($50 loss minus $10 deposit = $40). From a practical point of view, the cost of litigation and collection makes it unlikely that a seller would come after you for the loss (this obviously depends on the actual numbers in play).
However, I do not think you need to worry about the seller suing you to force you to buy the house (the is what is called "specific performance"). Specific performance is generally a remedy that a Buyer has against a Seller who refuses to sell. The logic being that a piece of property is unique and money damages are not necessarily appropriate, whereas (sorry) money damages are adequate to compensate a seller if a buyer does not close.
As with any advice from an internet stranger, your situation will depend on your facts, your contract and your state and local laws. My only real advice is to talk to a residential real estate lawyer.
posted by gingerjules at 8:22 PM on October 22, 2023 [6 favorites]
First, read your contract. The contract will say who is holding the deposit and what happens to the deposit if the buyer doesn't close. This will vary from state to state and often from county by county, but - as a general rule - once all of the contingencies are satisfied and the buyer does not close through no fault of the seller, the deposit would be forfeited to the seller. Depending on what your contract says and the law of your jurisdiction, the seller can also come after a buyer for any losses that exceeds the amount of deposit. For example, if you agreed to pay $500 for the house and you put up a $10 deposit but don't close, the $10 would go to the seller. If the seller later sells the house for $450, you (the original buyer) could be liable for an additional $40 ($50 loss minus $10 deposit = $40). From a practical point of view, the cost of litigation and collection makes it unlikely that a seller would come after you for the loss (this obviously depends on the actual numbers in play).
However, I do not think you need to worry about the seller suing you to force you to buy the house (the is what is called "specific performance"). Specific performance is generally a remedy that a Buyer has against a Seller who refuses to sell. The logic being that a piece of property is unique and money damages are not necessarily appropriate, whereas (sorry) money damages are adequate to compensate a seller if a buyer does not close.
As with any advice from an internet stranger, your situation will depend on your facts, your contract and your state and local laws. My only real advice is to talk to a residential real estate lawyer.
posted by gingerjules at 8:22 PM on October 22, 2023 [6 favorites]
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But from what you've said, it does sound like you might be out of luck. The purchase agreement is generally binding on both parties, and the contingencies define when and why each party is allowed to back out. If the contingency period has past, you may be at the mercy of the sellers, who, depending on local law and the wording of the contract, might even have the right to sue for specific performance (i.e. to force you to buy the property).
posted by firechicago at 6:12 AM on October 22, 2023 [13 favorites]