Handling Deposits: When a buyer makes an offer on a house that’s for sale, and the seller accepts the offer, the buyer is required to pay a deposit, which will be returned to him, if he changes his mind in 3 days. This deposit will be applied to the price of the house at the time of closing, which is generally after a month. After 3 days, if the buyer changes his mind, he will have to forego his deposit, i.e., legally the seller keeps it. If it happens such that the buyer changes his mind about buying the property, can the seller keep the deposit made by him?
As an example please consider two conditions under which the buyer changes his mind – (a) he lost his job or lost his money due to an uncontrollable circumstance. (b) he simply found another house that he felt was better, and doesn’t care about breaking the first contract and losing his deposit.
And from a seller’s viewpoint, he cannot entertain any other offers while the house is under contract. So, this money will be compensation for other lost opportunities.
In the name of Allah, Most Compassionate, Most Merciful,
There are two scenarios to your question:
1) The buyer and seller merely agree to go ahead with the transaction of selling the house on a future date. Actual offer (ijab) and acceptance (qabul) does not take place.
2) Both parties actually transact the sale of the house with proper offer and acceptance.
In the first case where both parties promise one another to carry out the sale on a future date and the buyer pays a deposit on this promise, if the buyer fails to keep his promise in purchasing the house, it will not be permitted for the seller to keep the money deposited by the buyer. Similarly, if the seller for some reason refused to go ahead with the sale on the specified date, it will not be allowed for the buyer to demand back more than what he actually deposited.
However, both parties are morally responsible to go ahead with the transaction. It will not be permitted for the buyer or the seller to turn their backs on the promise unless there is a genuine and valid reason for doing so. By not keeping the promise, one will be committing the sin of breaking a promise which, in the words of the Hadith, is considered to be a sign of hypocrisy. However, it will not be permitted for the seller to keep the money deposited by the buyer if the buyer fails to go ahead with the transaction.
In the second situation where both parties actually conclude the transaction by mutual agreement and the buyer pays some money in deposit as advance payment, in principle it will not be permitted for the seller to keep the money deposited by the buyer if he fails to go ahead with actually taking delivery of the house or property.
Imam Malik (Allah have mercy on him) narrated a Hadith in his al-Muwatta from Amr ibn Shu’ayb, from his father, from his grandfather that the Messenger of Allah (Allah bless him & give him peace) forbade the transaction of Urban. (al-Muwatta, 2/129, kitab al-Buyu’)
Imam Malik (Allah have mercy on him) then explained the term “Bay al-Urban” (m: also known as Arbun or Urbun) that it is referring to the situation where the buyer pays some money in advance and says: “whatever I have paid you, consider it as advance payment for the goods, and if I fail to pay you the remainder you can keep the goods as well as the deposit.” Imam Malik (Allah have mercy on him) states that this is invalid (batil) (ibid, 129-130)
In light of the above it becomes clear that the seller cannot seize the money paid by the buyer as deposit if the buyer fails to pay the outstanding amount. However, at times the seller may have to undergo extreme difficulty due to the buyer’s refusal to go ahead and conclude the transaction with paying the outstanding amount. The buyer, in turn, may genuinely be not in a position to pay the full price and conclude the transaction.
Thus, scholars mention that in order to solve this problem, both parties may conduct a complete new transaction in the re-sale of the property or item. If the seller wants to keep the item or property and also the deposit as compensation due to loosing out on opportunities to sell the item to someone else, he may agree with the buyer to buy back the item for a reduced price.
For example: A sold his car to B for five thousand British pounds with B paying one thousand pounds up front as deposit, thus leaving four thousand pounds to be paid off. Thereafter, B was not able to go ahead with the sale hence he sold the car back to A for four thousand pounds. Now, both of them owe one another four thousand pounds, hence the transaction is clear, and A gets to keep the one thousand pounds paid by B as deposit and also the car.
One must however remember here that this must be done with mutual agreement of both parties. Also, it should not be considered reversing the initial sale known as Iqalah, for when one revokes a previous sale, there must be no changes from the first transaction. Hence, in such a case, B will not be able to sell the car for a lesser price. Therefore, no mention of cancelling the original sale must be made; rather it should be a completely new transaction.
The above explanation should have answered your questions, in that it will not be permitted for the seller to keep the deposit paid by the buyer if he was to change his mind after three days. The seller must give the money back to the buyer. This is the ruling whether actual sale takes place or it is a mere promise to go ahead with the sale on a future date. However, in the case of actual transaction taking place, both parties may agree on the re-sale of the property on a reduced price.
And Allah knows best
[Mufti] Muhammad ibn Adam
Leicester , UK