Today’s blog post is about “not” writing blank checks to REALTORS®. I got asked whether it’s normal for REALTORS® to ask blank checks when an offer is accepted. While my response was rather funny, here’s the detailed scoop of the discussion my reply-text was followed by.
When making an offer on a house while being represented by a REALTOR®, the buyer may need to write up to two checks once the offer is accepted:
- One is the earnest money. Its purpose is to make the contract valid and make the house unavailable for all other potential buyers if the offer is accepted. The amount is usually one percent of the offer price of the home. It is made out to the title company where the buyer plans to close the transaction. It’s refundable if the contingency of the accepted offer is met – eg. the seller accepts the offer contingent upon buyer obtaining third-party financing but the buyer isn’t able to obtain third-party financing. It is credited to the sales price at closing if the transaction goes to closing.
- Another is the option fee. Its purpose is for the buyer to get an unrestricted right to terminate the contract by giving the seller a termination notice within a certain period of time, called an option period. The amount is way less than the earnest money and is negotiable between the buyer and the seller. It is made out to the seller. It is non-refundable; however, it can be negotiated to be credited to the sales price at closing if the transaction goes to closing.
In either case, the amount of the check is negotiable and timely written notice will have to be provided to the seller’s agent.
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