Earnest Money: Copy of a Check or Proof Of Funds?

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There's no question which I'd rather have.

It has been traditional for a client to write a check to their broker's escrow account. Sometimes the check is actually deposited, but usually it's just held. It has recently become become a game with certain listing agents to ask for a copy of that check with the offer. I don't know why. It's not like it means anything beyond that the clients have a checking account.

Asking for a copy of the check doesn't do my listing clients any good. That check may not be good, and you don't have it anyway, nor is it even in escrow most of the time. In fact, even if it's written to the appropriate escrow company, sometimes they don't cash it for weeks. Furthermore, since you haven't agreed upon an escrow holder yet, it's kind of ridiculous to be writing a check when you don't know who's going to be holding it. All of which means that asking for a copy of the check doesn't mean a damned thing.

From a broker's viewpoint, the number one way brokers get in trouble is escrow account paperwork. Stupid, minor little piddly crap on the scale of the transactions we handle, whose entire purpose is seeing that client funds are separated completely from broker funds, but problems are caused by the fact that broker funds have to be used to pay the costs of such an account and therefore incredibly dumb little minor inadvertent stuff can cause a brokerage to lose their license. I'd like to see more unethical agents and brokers get charged with violations on other things that really make a difference to their clients, but that's no reason for witch hunts on the escrow account so long as the client's money goes in and out properly. Nonetheless, since brokerage escrow accounts are a witch hunt mentality on the part of the Department of Real Estate, I don't want custody of client funds if it can at all be avoided, and I see no reason to ask other agents do do something I wouldn't want to, and that doesn't benefit my clients anyway.

What I do want is evidence that the buyer does, in fact, have the money for the deposit. That's it's sitting there in a bank account, ready to write the check. That when they do write the check, the escrow holder will be able to cash it and get the funds into the account for this transaction without delay. I can make acceptance of the offer contingent upon the receipt of good funds by escrow, but why would I want to open escrow if the funds might not exist in the first place?

The first step is verification that the money is, in fact, there - and believably there. I cannot require account numbers, but I can require redacted account statements, or verification of deposit. If we're going to obsess about the deposit money, I'm at least going to obsess about things that mean something to my client, like whether the money is there and available, not whether the prospective buyer is willing to write a check that may or may not have the funds to make it good.

Caveat Emptor

Original article here


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This page contains a single entry by Dan Melson published on September 13, 2019 7:00 AM.

How to Effectively Shop for a Buyer's Agent was the previous entry in this blog.

The Return of Portfolio Lending is the next entry in this blog.

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