By Shanna Hardy, Consumer Protection Officer
During the course of preparing an offer on a property, a buyer observed her broker making copies of the due diligence and earnest money checks. Is this typical and why would a broker do this?
Every buyer hopes that a seller will accept an offer as soon as it is submitted. When that happens, the effective date is the same as the date of the offer. A buyer agent should anticipate that a seller might accept an offer on the same day it is submitted and collect the due diligence fee and earnest money specified in the offer. A prudent listing agent would want to verify that the buyer’s agent is in possession of the checks at the time the offer is submitted. One way of doing this is to see copies of the checks accompanied with the offer to purchase.
The reason the Commission staff has suggested this as best practice is because the Commission receives many complaints filed by sellers who are disgruntled because an offer was accepted from a buyer but no due diligence or earnest money was ever received, and the buyer decided to terminate the contract several days later. Typically in these cases, the buyer agent failed to collect the due diligence or earnest money checks when the offer was prepared and therefore was unable to deliver the funds to the sellers or the sellers’ agent on the effective date.
In addition to the best practice advice, Commission Rule A .0117 (c)(7) states that a broker shall create, maintain or retain, the following records; copies of earnest money checks, due diligence checks, receipts for cash payments, contracts, and closing statements in sales transactions. Because this rule specifically addresses earnest money checks and due diligence checks, both the listing and buyer agents should make their best efforts to obtain copies of the checks for their transaction files. A scanned or other electronic image of a check will satisfy the Commission’s record-keeping requirements. However, prior to making and sending copies, we recommend redacting certain information, such as the personal account number or a part thereof.
It is part of the modern practice of brokerage that transactions are often carried out remotely with parties and their brokers not always present in person to hand off documents and checks. A prudent listing agent will want to ensure that funds due to their client or being held by an escrow agent have been sent and received by the seller or escrow agent. A prudent buyer agent will want to ensure that their client has submitted payments as required. Obtaining copies of checks is one thing that an agent can do to help a transaction proceed to a successful close.