Q: Do I have to hold the buyer’s deposits in my escrow account? What if I do not want to pay the buyer’s broker or the seller is paying the buyer broker directly?
A: As a licensed broker in Massachusetts, you are authorized to hold client funds for a real estate transaction in escrow, which means you serve as a neutral third party, holding the deposited funds pursuant to the terms of the agreement, written instructions of the parties, or court order. However, you are not obligated to serve as an escrow agent. If your brokerage policy is to not hold client funds, best practice is to discuss this with the seller at the time of the listing appointment so that you may identify a potential escrow agent at the time the parties define such escrow agent in the purchase contracts.
If you do hold funds as an escrow agent, remember those funds are not the same as the monies in your operating account. When you hold the funds in escrow, they are held pursuant to the terms of the agreement and the mutual instruction of the parties. In most cases, when the purchase is funded by the buyer and deed recorded, what you are holding in escrow are seller proceeds, subject to disbursements defined by the terms of the agreement and on the settlement statement. These disbursements usually include compensation to the listing broker, compensation to the buyer’s broker, and potentially seller’s net proceeds issued to them directly. Remember, disbursing funds out of the escrow account is just a disbursement as a neutral party, it does not make the escrow agent’s broker or business a payor unless the flow of funds is defined that way in the underlying agreement.
Q: The seller rejected my client’s offer because it included a home inspection contingency, isn’t there a new law that mandates a buyer’s right to inspect?
A: On August 6th, the Governor signed the Affordable Homes Act into law. This law includes a provision that requires the Executive Office of Housing and Livable Communities to create regulations mandating a right to conduct a home inspection. The Act itself does not mandate this right. The new inspection regulations were scheduled for completion by December 15th, but there is a proposal to extend that date to June 15, 2025. The regulations may also have a separate later effective date. This means that the law cannot be implemented until those regulations are developed, so the seller’s rejection of this offer term is still legally permissible.
MAR will be involved in the regulatory process and will promulgate any recommended practice and forms changes once regulations are finalized, offering updates as they are available.
Q: Can a landlord ask for an increase in security deposit when they increase the rent?
A: Based on a conservative reading of M.G.L. Ch. 186 s. 15B, the landlord cannot ask for an increase in the security deposit with a rental rate increase. The statute limits the collection of a security deposit to the value of the first month’s rent. If the landlord wishes to increase this deposit, they will need to end the first tenancy and seek to start a new tenancy re-executing all new paperwork, etc. at the new rate. The treble damages penalty is just not worth the risk of a loose interpretation, however, if a landlord would like to take the risk they should seek advice of private counsel.
Services provided through the Massachusetts Association of REALTORS® is intended for informational purposes and does not constitute legal advice, nor does it establish an attorney-client relationship. The Massachusetts Association of REALTORS®, by providing this service, assumes no actual or implied responsibility for any improper use of responses to questions through this service. The Massachusetts Association of REALTORS® will not be legally responsible for any potential misrepresentations or errors made by providing this service. For more information regarding these topics authorized callers should contact the MAR legal hotline at 800-370-5342 or e-mail at legalhotline@marealtor.com.