In Wisconsin, a listing firm has historically held earnest money in the firm’s trust account. Many buyers and sellers still use the offer to purchase to direct the listing firm to hold earnest money, but there are transactions where the buyer’s firm holds the earnest money, or the parties negotiate that a title company or some other third party will hold the earnest money. For years, the WB offers to purchase directed earnest money to be delivered to the listing broker, with an option to write the name of a different person or entity on a blank line to hold the earnest money instead. Interestingly, that language directing a buyer to deliver the earnest money to the “listing broker or_____________________” created the possibility that the buyer would be in compliance with the contract if they delivered the earnest money to the listing broker or whatever entity was listed on the blank line. If the offer was drafted as having earnest money delivered to “listing broker or Title Company of Buyer’s Choice,” it was really the buyer’s choice to decide where to deliver the earnest money. This could potentially cause issues of not knowing whether the buyer was in compliance with the offer. If the listing firm was expecting the earnest money and did not receive it, it would then have to chase down the title company and see if the title company received the money and vice versa.  

2011 WB-11 Residential Offer to Purchase  

"EARNEST MONEY of $_____ accompanies this Offer and earnest money of $_____ will be mailed, or commercially or personally delivered within_____ days of acceptance to listing broker or _________________________ ."

2024 WB-11 Residential Offer to Purchase   

"All earnest money shall be delivered to and held by (listing Firm) (drafting Firm) (other identified as ____________________ ) STRIKE THOSE NOT APPLICABLE (listing Firm if none chosen; if no listing Firm, then drafting Firm; if no Firm then Seller)."

The WB offers were revised in 2020 to add provisions such as the radon testing contingency and, everyone’s favorite, FIRPTA. Other provisions in the offer received milder revisions including the language about where earnest money would be delivered and held. The Delivery of Earnest Money section in the 2020 WB offers to purchase acknowledged that, while having the listing firm hold earnest money was common, there were a growing number of real estate firms that no longer had trust accounts and elected not to hold earnest money. As such, the offer got some new parenthetical choices for where the buyer will deliver earnest money. The choices include the listing firm, drafting firm, and “other” with a blank like to accommodate the “other” that may be a title company, buyer’s attorney or any other recipient for the earnest money that the parties negotiated in the offer. This provision in the offer included default language in case an agent did not complete this section with the default being the earnest money delivered to the listing firm; and if the property is not listed, delivered to the drafting firm; and if there is no firm involved, then the buyer will deliver the earnest money to the seller. Though the WB offers to purchase have had additional revisions since 2020, the current 2024 version of the WB offers to purchase maintains the same language as it relates to delivery of earnest money.

Failure to comply with an audit and trust account violations 

A buyer drafted a WB-11 Residential Offer to Purchase with a provision indicating the buyer would deliver earnest money to the listing firm, which the seller accepted. The buyer took advantage of an electronic delivery platform for earnest money delivery, but the buyer’s agent incorrectly provided the buyer with a link to have earnest money delivered to the buyer’s firm instead of the listing firm. There is no way to undo this transfer as the money is processing through the electronic delivery platform. It was too late for the buyer to stop the transfer. The buyer’s agent’s supervising broker suggested the seller and the buyer amend the offer to say the buyer’s firm is going to hold the earnest money. The seller was not interested in that option. The listing firm suggested the buyer’s firm just cut a check to the listing firm for the amount of the earnest money and then withdraw the buyer’s funds from the buyer’s firm’s trust account to pay themselves back for the money the buyer’s firm delivered to the listing firm on the buyer’s behalf. 

Wouldn’t that still require an amendment to the offer?

This would still require an amendment. One way to handle this would be for the buyer and the seller to amend the offer and say that the buyer’s firm is going to hold the earnest money. Additionally, the parties may need to amend the deadline for delivery of the earnest money because the buyer might already be in breach of the contract by failing to deliver earnest money to the listing firm by the deadline in the offer.

Alternatively, the buyer’s firm could submit a check to the listing firm for the amount of the earnest money, but the buyer’s firm would not be able to re-pay itself out of the buyer’s firm’s trust account for the amount paid to the listing firm on the buyer’s behalf. Once the earnest money is in a real estate trust account, the disbursement rules kick in and the firm cannot disburse without a written disbursement agreement signed by all parties to the transaction. Both the buyer and seller would need to agree in writing for the buyer’s firm to withdraw money from the buyer’s firm’s trust account to repay itself for the money the buyer’s firm delivered to the listing firm on the buyer’s behalf.

Would anything about this scenario change if the buyer paid the earnest money by check instead of by an electronic payment system? 

Whether this scenario would play out any differently if the buyer paid by check where the check was incorrectly made payable to the buyer’s firm instead of the listing firm will depend on where the parties are in the process. If the buyer submitted an offer to the seller with a check for earnest money incorrectly made out to the buyer’s firm, the listing firm would have one business day to forward the funds to the buyer’s firm or return the funds to the buyer. 

If the firm forwarded the funds to the buyer’s firm, the buyer’s firm would have 48 hours to deposit the funds, and the offer to purchase would still need to be amended to reflect that the buyer’s firm, not the listing firm, is holding the earnest money. If the listing firm returned the check to the buyer, the buyer could send a new check correctly identifying the listing firm as the recipient of the earnest money. The offer still might need to be amended if the timing to return the check and issue a new one put the buyer in breach of contract for not delivering earnest money to the listing firm by the deadline specified in the offer.

An agent can avoid this whole scenario by double-checking where the buyer is delivering earnest money and making sure that matches the offer.