Does Deposit Acceptance Turn an Offer into a Contract?
May 21, 2018
We often get this question on Florida Realtors Legal Hotline: Is earnest money required to make a contract legal and binding?
The short answer: no.
Deposits often provide evidence of a buyer's commitment to the purchase, but they're not required by law. A binding contract to purchase real estate only requires "consideration," which is defined as something of value offered for something else of value.
According to the Florida Bar, "The formation of a contract is accomplished when there is an offer and acceptance between the contracting parties of the exchange of 'consideration.' This offer and acceptance are sometimes referred to as a 'meeting of the minds.' If the parties have not reached a meeting of the minds, then there is no agreement."
In the case of a real estate purchase contract, the buyer's consideration is money – the purchase price; the seller's consideration is the deed to the property.
Most purchase contracts contain a section that indicates the amount of an escrow deposit and its due date. Purchase contracts also usually contain a liquidated damages clause that entitles the seller to keep the deposit if the buyer defaults. Liquidated damages are common in real estate purchase contracts where the parties agree on a remedy for the other side should the buyer default.
If you're a listing broker and receive a contract that is either cash or 100 percent financing with a deposit amount of "0," you must present it to the seller. The contract is valid despite the lack of an earnest money deposit. It's fine to tell the seller that since there's no deposit, there's nothing the seller can keep as liquidated damages if the buyer defaults. However, buyers and sellers can negotiate these terms just like all other terms of their agreement.
Some sellers look at a lack of deposit as unfair. Why, they ask, would they remove their house from the market if the buyer isn't serious enough to put down a deposit? A seller may certainly insist on a deposit before agreeing to the contract, and a deposit may be added if the buyer agrees. However, it's not legally required. It's simply part of the seller's counter-offer, just as they'll sometimes ask for other requirements like proof of funds or a prequalification letter.
Transactions come in all shapes and sizes, and it helps if Realtors understand some components of contract law to assist them in working with buyers and sellers.
In any case, all parties should review purchase contracts carefully, preferably with an attorney, to make sure they understand their rights under the agreement in the event the other party doesn't perform as promised.
Margy Grant is COO & General Counsel of Florida Realtors
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