Buyer’s Earnest Money Deposit on a Short Sale?

Q. CJ, can you explain what “buyer to deposit earnest money with escrow pending lender approval” means in the purchase agreement for the short-sale I’m buying means?

In  “traditional” sales, the earnest money deposit is put into escrow within a contractually designated period (3 days customary for California) upon confirmation of acceptance of the offer by the seller.

But  in a short sale, because of the lengthy approval time, the deposit is typically held back until the short sale lender has approved the short sale offer.

Buyers sometimes write an offer on a short sale and continue to look, cancelling the minute something better comes along. Some listing agents have found if they ask for the deposit as in a traditional sale, it makes for a stronger commitment from the buyer to wait for the sale to complete.

The wording of the deposit and how long the buyer is willing to wait as well as other contractual deviations due to a short sale approval is spelled out in a “short sale addendum”. If you have submitted a short sale offer, your agent should have you sign a short sale addendum and most likely a short sale advisory.

Read and understand the timelines, commitments, and how your deposit will be handled with a cancellation. Ask questions of your agent if anything is not crystal clear.

Thank you,

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