Earnest Money and Arbitration - Posted by Clint Votruba

Posted by Carmen on May 04, 1999 at 17:21:18:

I would suggest NOT to do it!

First of all, that’s a heck of a liquidated damage - but it being a custom home, and being that it’s on your lot and he probably would not be able to sell the house to anyone else, it may make sense to him. However, I would NOT take it out of escrow.

Our builder asked us to do the same thing - we at first thought “why not” - then we answered our own question, and said NO WAY. They were pushing us, saying we were the ONLY ones in the development who were not “Cooperating” - but we stuck firm, and the amount was held in escrow (which means they couldn’t touch it until closing)

  1. If there is a dispute, and for whatever reason you do not purchase the home due to something the builder did, if he already used the cash, you will have to sue him to get the money back. If the money is in escrow, at least you know that he will have it!

  2. If you let him use your money, and it’s not in escrow, and he skips town - then what? Better safe than sorry.

  3. If you hold the money in escrow, it gives you a wee bit more negotiating power - you can even use it as an incentive later on if you need to - “If you build out that slab for my porch for cost (or less), then I would be more inclined to “liberate” a certain amount of the escrow funds…”

Just my thoughts. Legally, I don’t know how this would work; I don’t believe they can “force” you to take the money out of escrow and let them use it.

Earnest Money and Arbitration - Posted by Clint Votruba

Posted by Clint Votruba on May 04, 1999 at 16:03:22:

My own lot having a custom made home built on it.
Builder want about 10% Earnest money
to be held as security and not in escrow
which will be used in building the house
and refunded in full at closing
but will be lost as liquidated damages should I breach
Is this normal?


Builder wants the local building association to arbitrate
all disputes etc. and in Illinois I’ll be bound by their decision and wondering if there are alternatives like
the American Arbitration Assoc. or other alternative you can suggest.