Who should hold them, for how long and when should they be disbursed? All key questions when it comes to the issue of the 10% deposit paid by a purchaser to the vendor on signing the sales agreement.
Sellers feel they’re entitled to it immediately; estate agents may want to take their commission as soon as it is paid. There is plenty of room for confusion, disagreement and conflict. Of all the stages involved in buying or selling a property, how to handle the deposit can often excite the most debate.
What Does the Law Say?
Once a verbal agreement has been reached by the buyer and the seller, a sales agreement is drawn up by the agent, or an attorney, signed by the buyer who makes a 10% deposit at the same time, and then the seller signs, acknowledging receipt of the deposit. The deposit belongs to the seller. It is his property that is being sold, and he can ask for the deposit to be paid directly to him on signing the contract.
This is not without its dangers, for if the sale does not go through to completion then the seller may be liable to pay back the full 10% deposit.
“There are lots of people who want to collect the deposit up front but we do not recommend that because of the problems that might ensue,” say AREA Member Calvin Benjamin, of Benjamin Enterprises Limited.
“If the vendor takes the money and spends some of it assuming nothing can go wrong and then the transaction does not go through, for whatever reason, problems may well arise.”
“In cases where people or companies insist on having the money paid over to them like this, we have to have everything down in writing so that we exonerate ourselves. Letters of indemnity are signed because this is not the way we prefer to do business.”
This procedure is necessary because the deposit remains legally refundable until good title is found on the property. In order to prove this, the buyer’s attorney must search the Red House archives to find the home’s root title. Once this has been achieved the deposit becomes non-refundable.
AREA Policy and Procedure – Best Practice
The Association of Real Estate Agents provides its members with clearly written advice on its policy and procedures regarding deposits, which seeks to be fair to all parties. This advice stems largely from a desire to avoid the problems associated with repaying monies when a transaction does not progress to completion.
“The AREA process is that money is put in escrow until the completion of the transaction. That is until the final payment of monies within the 90 days,” explains Benjamin.
“We hold money in client accounts and a notation is made to that effect. We do that with the full concurrence of all parties concerned with the transaction. Holding the deposit in a neutral location for a few weeks protects all parties until the money can be used freely by the seller.
“Not all real estate agents do this but we do it as a matter of best practice. I like to se things progress in an orderly manner and as amicably as possible; this is the best way that we have found. There is no question about how it’s being held, by whom and for how long, that is all made clear.”
Who should be responsible for overseeing the deposit during this period?
The obvious answer is the attorney of the seller or the purchaser since he can be expected to operate strictly and objectively within the law and he will have the necessary US$ and TT$ client accounts to hold the funds separate from his operating funds.
In many cases, the agent is also reputable enough to be trusted with the task and all AREA members are required to have at least one client account for holding deposits.
The most important thing is to put the agreed procedure into writing, either in the sales agreement or as a separate letter to they buyer’s attorney so that roles are clearly agreed and courses of action pre-arranged to avoid nasty surprises when they are least appreciated.
The stakeholder can also find himself in a very uncomfortable position if things go wrong and bother parties are demanding their money. All members of AREA have the option of seeking advice and even asking for arbitration from the Association’s Discipline and Ethics Committee, which is a simple way of seeking a resolution without having to obtain legal advice or go to court.
The final are of frequently divergent opinion concerns the payment of an agent’s commission.
According to the AREA listing agreement, the agent has earned his commission once the sales agreement is signed by both parties and the deposit is paid. However, many homeowners are uncomfortable with a possible situation where an agent receives their payment and the transaction has not yet been fully completed.
To avoid any potential ill-feeling or uneasiness, AREA recommends no differentiation be made between the treatment of an agent’s commission and the remainder of the deposit; it is all held in escrow for the same duration.
“We are entitled to the commission upfront but we hold the entire deposit in escrow. We do not take our money and leave the remainder, that would not be right,” says Benjamin.
“It is dispensed upon completion of the transaction with the final payment of monies, with the ninety days. We prefer to do it that way.”
AREA promotes a transparent and evenhanded approach to the handling of deposits but the same cannot be said of all agents.
However, and with whomever, you proceed the advice is always to seek clarity of your position; have everything agreed upon by all parties concerned; put it in writing and copy it to everyone involved to avoid surprises and possible disputes.
With the handling of deposits, it is often not so much a case of what is right or what is wrong, but what you agreed to in writing.