Cautionary Tale: Please make sure you are collecting and paying deposits according to the written dates. Your fiduciary duties obligate you to honor and enforce the terms of the Purchase & Sale agreement on behalf of your client, and failing to do can have some serious ramifications. We chatted with Board Legal Counsel, Mike Shepard, about the liability issues facing both buyer agents and seller agents and here’s the scoop:
|For Buyer Agents:
The 2nd deposit is due and payable on the date indicated in the P&S agreement (or agreed extension of 2nd deposit due date). Regardless of contingency issues. The funds must be remitted to the Escrow Agent on or before that date in order for the buyer to be in compliance with their contractual obligations. The buyer could be considered in default if this does not happen as contractually agreed / written. You must make sure your buyer understands their obligations and what can happen if the deposit isn’t paid as indicated. (Are they prepared to be considered in default and lose their first deposit??) If the buyer wants an extension to pay the second deposit, IT MUST BE AGREED IN WRITING by the buyer and seller. You have to generate that paperwork and make sure it is executed by all parties before the 2nd deposit date is due, or prepare your buyer for the consequences.>> We have seen where a buyer agent lost track of contract dates and didn’t remit the second deposit. Faced with a better offer, this was considered a default of the P&S agreement. The buyer ended up losing their first deposit AND the house. Don’t let this happen to you.
|For Listing Agents:
You owe your seller the obligation to obtain the proper deposits and to inform them if you are unable to the collect from the buyer by the time specified in the agreement. The seller has a right to know if the deposit promised is not paid and if the buyer is in default of the Purchase and Sale Agreement. Your liability increases when the 1st deposit is less than the buyer’s default funds… If the buyer defaults and the seller can’t collect their specified damages because you failed to uphold your fiduciary duties, your brokerage could be on the hook.>>We have seen where a listing agent lost track of contract dates and didn’t collect the 2nd deposit. When the buyer decided to walk at the last minute and the listing agent only collected a small first deposit, the brokerage ended up paying the remaining default funds because of their error. Don’t let this happen to you.
NAR has a great 2 page explanation about fiduciary duties for help understanding your obligations when you agree to represent someone.