Every brokerage has the right to define its own culture and values. Some prefer to help as many buyers and sellers as possible, while others take a more boutique approach to focus on clients with specific needs. There is no right or wrong, and it’s one of the reasons why choosing the right Realtor could literally be the difference between a terrible experience or an incredible transaction.
All brokerages also have the right to hold binder deposits for their agents’ clients. They do not have to, but doing so has some major benefits.
What is a binder?
A Real Estate binder or escrow binder is any amount of money a home buyer puts down after making an offer on a house and completing an executed contract. The money is meant to show a home seller that they are making an offer in good faith and also demonstrates to the seller that the buyer has the money necessary to complete the transaction. The amount of the binder is negotiable.
The binder money is held by an attorney, a title company, or a brokerage if either brokerage (buyer’s agent or seller’s agent) is one that holds escrow accounts (like A.N. Shell Realty). When the buyer closes on the house, the binder deposit is put towards the closing costs or down payment.
The binder is not a contract for the sale of a home. It is a good-faith financial deposit from a buyer that includes a written statement containing the conditions under which the buyer would buy the house or property. It might include things like the conditions of the property, the financing or contingencies like selling a present home, and even the specific sale price. There’s usually a general closing date/time included, too. Again, this is not a contract to buy a house – only to demonstrate one’s desire to buy a house.
Where does the binder go?
The binder money goes to one of three places. The first option is a title company. The seller chooses the title company and they hold the binder in an escrow account until they close the transaction. The second option is that a lawyer will hold the binder in an escrow account and then release the money to the title company on closing day. The third option is that a buyer can put their binder in either brokerage’s escrow (their own agent’s brokerage or the seller’s agent’s brokerage) and will hold the binder in an escrow account of their own. There is a huge benefit to leaving the binder with a brokerage and we’ll talk more about that soon.
The binder, now in an escrow account, is held until the purchase of the home closes. Whether in an escrow account with a lawyer, closing company, or brokerage, the money remains in the account. One hundred percent of the money can then be used towards closing costs or down payments.
What if the buyer doesn’t close?
If the buyer decides not to purchase a property within 10 days, they are not guaranteed to receive that binder back. This due diligence period of 10 days is meant to protect the buyer from buying a home with problems, but the specific terms of the contract are what determine whether or not the buyer gets all or part of the binder back.
Most binder contracts are incredibly lax and give the buyer just about any reason imaginable to back out within 10 days. The major deciding factor then becomes an agreement between the buyer and the seller. The buyer’s reasons for backing out must fall within the terms of the contract. Typically, the seller will agree to return the binder to the buyer without incident. However, if the seller feels that the buyer has breached the contract, they can negotiate to only return part of the binder. They can also argue that the buyer cannot have any of the binder back at all.
What if the buyer feels they deserve the binder back and the seller won’t agree to release it?
If the buyer and seller cannot come to an agreement and the seller refuses to sign the binder back over to the buyer, the next step depends on where the binder was held.
If the buyer was held by a title company or attorney in escrow, neither will make a decision nor disperse the funds due to liability. This means that the buyers and sellers will then be responsible for obtaining their own representation and either going to mediation, arbitration or litigation. Each will have the opportunity to argue their case and at the end of the day, a third party will decide. Of course, obtaining representation could cost more than the binder itself.
However, if a brokerage held the binder and the buyer and seller can’t agree, the brokerage can then send the matter to the Florida Real Estate Commission (FREC) for free. FREC will then adjudicate on the subject based on the evidence given. The outcome of that adjudication is legally binding.
Can you really win your binder back?
No one is happy when a buyer asks for their binder back. It means something went wrong. It could be something as simple as the buyer changed their minds, but it could also be that some major issues were uncovered and the seller will likely have to tend to them prior to relisting. Either way, most buyers (obviously) want their binders back.
At A.N. Shell Realty, we offer to hold all binders for our buyers in an escrow account. On more than one occasion, we’ve sent binder disputes to FREC and won on behalf of our clients.
In one dispute, our buyer put down a binder on a home they intended to purchase. The inspections came back with no major issues and the terms of the contract were agreed upon. The only issue? When the buyer attempted to obtain homeowners’ insurance on their new home, the insurance company found a discrepancy between the age of the roof and a recent claim by the seller. The seller had collected money for a new roof the year prior but hadn’t actually put on a new roof! When confronted, the seller agreed to put on a new roof prior to closing but the buyers opted to cancel the transaction entirely and retrieve their binder. When the seller refused to sign over the binder, the matter went to FREC because the binder was held at A.N. Shell Realty. FREC found in favor of the buyer and has directed that their monies be released back to them!
Not all of our disputes are on behalf of the buyer. In another dispute, a buyer put down a binder deposit with a contract and A.N. Shell Realty represented the seller. The buyer’s contract was contingent upon the buyer obtaining financing and included an ability to terminate the agreement within 45 days of applying for the financing if it’s not approved. When the buyer’s financing was not approved, the buyer did not notify the seller of his intent to cancel (nor that financing was not approved). This caused the seller to have no indication they weren’t headed to the closing table! The buyer later asked for his binder back, but the seller refused to sign it over and the matter went to FREC. FREC determined that the transaction failed because the buyer did not communicate with the seller that he did not have financing within the terms of the contract and therefore was in breach of contract would not receive his binder back.
Brokerages that take on the liability of holding binders in escrow do their agents and clients a huge service! With free access to the Florida Real Estate Commission, any disputes can be handled fairly and with an unbiased look at the facts. While no brokerage ever wants to go to these lengths, real estate is a hairy business! Even the most experienced agents and brokerages can find areas of gray within almost every contract. A.N. Shell Realty just happens to believe that holding binders is in the best interest of our clients and is just another way we put people before property.