Non-Refundable Deposits

by James L. Goldsmith
April 2022

Where the market is hot, buyers will do just about anything to get their offers to stand out.  Big cash and waived contingencies have become routine.  I’m also seeing large, “non-refundable” deposits more than ever before. 

What does “non-refundable” mean?  Does it means that the deposit is non-refundable under any circumstance?  What should we expect when the seller terminates the Agreement with no legitimate basis, that the buyer is not entitled to a return of their deposit? 

I would anticipate that if Seller has no basis for terminating the agreement that a court would not reward that seller by allowing him to keep the non-refundable deposit.  But, then again, I know too that we shouldn’t have to go to court for such a logical resolution.  Well-drafted contracts, clear, unambiguous, detailed, leave little (hopefully nothing) to chance.  Shouldn’t any non-refundable deposit clause provide that the deposit is refundable if seller defaults?  Before you add this alone to your non-refundable deposit clause, think further. 

What if the certificate of resale for the property (a unit in a homeowners association) and/or the declaration/bylaws reveal something to the buyer’s dissatisfaction (e.g., only a small percentage of the units in the association may be leased), and the buyer elects to terminate, do they get their deposit back?  What about the buyer’s failure to order a title report within seven (7) days of the execution of the agreement.  As “time is of the essence” (see paragraph 5(C) of the standard agreement), can the seller terminate and retain that sizeable deposit?  And what if the property condition changes due to a natural disaster, or the title report reveals a condition that cannot be rectified before the settlement date, or, the homeowners association poses an assessment that is payable post-settlement?  Should buyer get the non-refundable deposit back? 

A well-built, non-refundable deposit clause is hard to draft.  I advise that you do not engage in the unauthorized practice of law and I know of no standard paragraph that exists.  If this is something that you want in your toolbox, I suggest you engage counsel to draft that clause for you (feel free to show him/her this article) or have your client take it to his or her lawyer for drafting.  I am not yet convinced that a singular, standard non-refundable deposit clause is realistic or wise.

As always, I am interested in hearing from you.  What do you have in your toolbox that gets your offers noticed?

Mr. Goldsmith is an attorney with Mette, Evans & Woodside and serves as outside legal counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends Realtors® in disciplinary hearings conducted by the Real Estate Commission. Jim was one of the voices of the PAR Legal Hotline for the first 27 years following its inception in 1992.

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