The Valuation Gap and the Stakeholder Deposit
A buyer signs Form F for a AED 1.9 million apartment on 12 March. The deposit is AED 190,000, paid into the brokerage's client account. The buyer's mortgage pre-approval is for 75% of the bank's valuation. The bank values the flat at AED 1.7 million, so the loan is AED 1.275 million. The buyer has AED 400,000 in cash, leaving a gap of about AED 225,000 plus fees, and cannot complete. The financing condition box on Form F was left blank. The broker had told the buyer 'the bank always values at the agreed price, don't worry'. The seller now demands the deposit be released to him as forfeited.
1. Who is entitled to the AED 190,000 deposit, and what may the broker do with it now?
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The deposit is held by the brokerage as stakeholder, not as the seller's money and not as the broker's commission. The broker may release it only if: both parties sign a written release; the MOU contains a clear forfeiture clause and the seller's entitlement is undisputed; or a court or competent dispute body orders release. Here the seller's demand is not enough by itself. If the financing condition was left blank, the buyer is contractually exposed, but forfeiture of a 10% deposit is still subject to reasonableness and to any argument that the buyer was misled. The broker should hold the funds in the client account, write to both parties setting out the competing claims, and not pay either side until there is agreement or an order.
2. Is the broker liable for telling the buyer that 'the bank always values at the agreed price'?
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The broker is not a valuer and cannot guarantee a bank valuation. Saying 'the bank always values at the agreed price' is a statement of assurance that goes beyond marketing opinion. If the buyer can show he relied on it, the broker faces a misrepresentation and ethics complaint, and RERA may treat it as misleading conduct. Liability is not automatic: the buyer is expected to make his own arrangements and the bank instructs its own valuer. But the broker's position is weakened by the oral, undocumented nature of the assurance and by the missing financing condition. The lesson is to put valuation risk in writing: 'purchase subject to mortgage valuation' and never promise a valuation outcome.
3. Recommend a resolution and the drafting changes that would prevent a repeat.
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Options: (a) negotiate a partial refund, with the seller keeping a documented sum for delay and remarketing; (b) extend completion while the buyer raises the AED 225,000 gap or finds a higher valuation from another bank; (c) if the MOU has no financing condition, the seller's forfeiture claim is stronger, but the buyer can still challenge the amount as a penalty; (d) refer the dispute to the DLD/RERA mediation or the court. The broker should not take sides and should document every offer. Drafting fix: tick the financing condition, specify the maximum LTV and a long-stop date, and require the buyer to provide a pre-approval before signing. That converts a predictable dispute into a clear contractual exit.