Working in real estate in Naples Florida I am asked: Is earnest money required to make a contract legal and binding. The answer: no.
Deposits are often provided as evidence of a buyer’s commitment to the purchase, but they are not required by law. A binding contract to purchase real estate only requires consideration. Consideration 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’ (that is, something of value). 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 consideration the buyer is offering is the purchase price in exchange for the deed to the property.
Most purchase contracts contain a section to indicate the amount of an escrow deposit and when it’s due. 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, even though the parties are agreeing what the remedy is for the other side in the event the buyer defaults.
If I as the listing broker receive a contract that is either cash or 100 percent financing with a deposit amount of “0,” I must present it to the seller. This contract is valid despite the lack of an earnest money deposit. I may explain to the seller that because there’s no deposit, there is nothing for the seller to keep as liquidated damages if the buyer defaults. Buyers and sellers can negotiate these terms just like all other terms of the 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 is not serious enough to put down a deposit? A seller certainly may insist on a deposit before agreeing to the contract; this is allowable if the buyer agrees. However, it is not legally required. In addition to a deposit, sellers will also sometimes ask for other requirements like proof of funds or a prequalification letter.
Transactions come in all shapes and sizes. I advise my clients to have an attorney review the contract, and also work with a realtor who understands the components of the contract. Contact me to assist you with your real estate needs in Southwest Florida!
Source: Florida Realtors
Visit Naples.house for luxury homes for sale in Naples, Bonita Springs, Estero, Sanibel and Captiva Islands, and Marco Island.