do i need earnest money to put a contract on a property
Yes. To have a valid contract, you need some form of ‘consideration’ which is usually earnest money.
Is this person to person, or thru the MLS?
what do i do in both situations person to person and mls?
And how much should i give?
Earnest $ is between you & the Seller. If the Seller will take $10, give it to them. For short sales/foreclosures I give $10 in earnest $. Other properties, e.g., probate, I might put up $100 - just to show them I’m serious.
can you tell me how to put that in words to a motivated seller?
Hello moh sin,
Earnest money does not bind contracts , mutual consent with signatures from all parties do though. Common misconception says money must change hands to make a deal. Earnest money doesn’t change hands it goes to Title co.
I use E money with sellers who have bad info, and REQUIRE E money. Still I make it due at closing. Go figure, still legal and binding.
If you are wholesaling then you have already purchased at a huge discount and will have no problem selling your contract, even if you/and seller decide to redeem the E.money to escrow you should put the E. money redemtion far enough out in the contract so that your buyer will pay it. So you now have a bought and sold deal with no money out of pocket. Hence E.money now becomes scribbles on a contract that your buyer will deal with…not you !
sum sin, Darin
You dont, but you will have a very difficult time getting banks (foreclosures) to accept offers without putting any earnest money up (at least in my area) they typically state right up front that all offers are to include $1000 earnest money. Without that money they wont even take an offer. So by trying to save a $1000 in deposit money, you could be missing deals that will make you $10,000 plus.
They do allow for inspection contingencies on property, but only after the home is under contract which requires earnest money, essentiallly if you can borrwo $1000 from someone, for the amount of time it takes to get your buyers through then you will be OK
:cool DARIN you need keep in mind we think on the other level out in the northwest !!!
BUT yes as the saying goes e money is not the deal but just something i have found in most cases makes the sellers look at thingsina way that says oh the buyer really wants my property //// and the amount is not that big of a deal !!! MOST of the time i find realtors want larger amounts of e money then they really need ask for !!! WHERE person to person they realy just want to know re you buying or just pulling my leg /// have the money to buy or not ??
Earnest money does not bind contracts , mutual consent with signatures from all parties do though.
That is not exactly correct. In most states, for a real estate contract to be legal and binding, there has to be some form of ‘good and valuable consideration’ given to the seller by the buyer (even if it’s held in escrow). Now, while that doesn’t necessarily have to be money, it is the most common form of consideration given, as two cows and a goat are usually frowned upon nowadays. :biggrin
point being that it is the timing of the emoney, and I agree there is different flavors of emoney for different deals. Yes emoney has to be addressed and the particular deal will determine how to handle it.
Required some times…New buyer pays…Due at close
New constuction X X
Sub 2 X X For meX
Whole sale X X
REALLY Good deal !! Write the check ! X X
YOUR DEAL ? ? ?
When making 10 offers a week,RARELY do you have to actually have emoney if timed right depending on exit/ownership strategy.
Do what works with little or no money !
NO and Yes. Refer to previous post. Purchasing through a realtor with no Emoney will be challenging. They are not familiar with no emoney contracts.
The point being, yes on the paper you will have to show you are going to put up emoney but in your case you will be selling the contract/property before YOU need to show the kwaun.
You do not actually have to HAVE the money to put it under contract.
If you do not put up earnest money you still have a contract as long as you perform to the contract the way it is stated. You make the contract, and in it you say " $5000 emoney to be deposited at closing" Well closing could be 60 days away…that will give you enogh time to sell the property/contract and YOUR buyer will put up 5k emoney in escrow because you will require it in your contract with your buyer.
So effectively you have NO emoney in the deal.
And yes contracts are still legal without emoney.
Hope this helps , let me know, sum sin, Darin
so basically i dont need to give it up front, as long as i word it right on the contract. Thanks alot
I told you to leave my family out of this! :evil
Ive heard froma recent course of a guy who uses $20 promissary notes for earnest money.
Basically the money is good and they get it if he backs down, but until then it is not $20 out of his pocket.
He justifies this to the seller by saying that it gives him more freedom with his money and that it lets him pay them more, or something.
Anyone else do this? See a porblem with it?
No problem that I see with that. Actually I am looking an lease option deal now that would require a significant down, without a large private money loan it’s not a doable deal to me as I don’t have the cash. I was actually tossing around the idea of offering up a note in leiu of an option payment in cash. The guy wouldn’t get cash up front but he would have something substantial to make sure I am going to follow through at the end, was probably going to offer him a note of like $100k in the high single digits to low double digits. Probably interest only, ballon in 5 yrs or something. From my conversations with him it seems he doesn’t need to sell and doesn’t need the money but needs something to make sure the deal goes through, I’m guessing he’s been half a**ed before by others and wants some of my skin in the deal. While a note isn’t cash it is an obligation to follow through on giving him money where an option is only binding on his end.
It’s not the $20 dollars, It’s the Promissary Note. Instead of writing checks for all the offers you are going to write next week, yes you. Use Promissary notes, then you don’t have a bunch of checks floating around if the offers are not accepted.
The dollar figure is really just an emotional issue backed up by money, meaning if the timing is right on your purchase, Purchase property today to whole sale tomorrow but contract says close in 60 days and emoney due at closing…How would your seller feel if you put “20 bucks” Emoney or $5000. The seller FEELS that you are Golden and it doesn’t matter to you because you are not paying it …your buyer is.
So when you and I bid on the same property one says 20, 50 or 100 bucks and my says $5000.
he will like my offer better. But the savy seller will see no difference in the offers because they will both be “due at closing”
The guy doesn’t give up the 20 bucks either because he will have done all his due dilligence prior to commiting on the deal or during the “free look” period of the contract, hence prommissary note.nothing to loose.
Try collecting on a prommissary note valued at 20 or100 or 500 bucks if the guy defaults, not happenin’.
The guys loosing their 20 bucks are not savy investors or even smart. It only means they are careless and have not done their work checking out the deal, or writting the offer to protect themselves. Guru’s selling people on $10 emoney deals just aren’t willing to take the time to explain emoney in depth so they throw you a $10 or $100 dollar fix all.
Hope this helps, D
GOD WNZ how are you? I have a quick question about your strategy. If I were to state that the 5k Emoney was due at closing to use that emotional edge and I assigned the deal to my investor/buyer and they do not close, hence the assignment has not completed and in my contact I stated as the sole remedy for the seller if I do not close is the Emoney. Who is responsible for that Emoney
Here’s an experience I’m about to have (hopefully): I have a property under contract with $200 earnest $. I want to assign it. I’m going to require a $200 non-refundable deposit as part of the assignment. That way, if the assignee doesn’t close, I won’t lose my earnest $.
BTW: the Seller knows that there could be the possibilty that the contract doesn’t close.
Good Morning Freedom,
Good question, One way of doing assignments is sell/assign contract and walk away.To answer the way you asked would be, You would, or your buyer would. The point being the seller gets to sue every body in line if he chose to. Every lawyer will see it a different way and In the long it will be cheaper to pay him the emoney and close so you don’t lose completely. Yes all of that will be a huge hassle and take you down a trail of costly education.
Soooo. When I assign I sell the contract to some one who can close on the contract. What is easier…to qualify a buyer , get him to escrow to close on the contract …or… argue with the seller, the guy you sold the contract to and every body’s lawyers?
Morale of the story is (for me anyway) to sell the contract AT THE TITLE CO closing table. I require my buyers to pay me the assignment fee AND close on the contract at the same time.
It’s a full service, no blowback type of deal. Every body wins, I sleep good and I pay the Title team a bonus as they are doing me a favor collecting a cashiers check and getting a notarized signed copy of the assignment for me. And no harm comes to my seller and they will most likely find me another deal to buy. Had one seller like how smooth it went so he sold me three more of his properties! I don’t buy anything unless I know I can close.
Feel the Freedom !Darin
If your seller is truly motivated then they won’t even look at the earnest money section of the contract. I have never been asked about the 100.00 I write in the earnest money section. By the way, I will only post earnest money at the title company when the contract is executed. Only thing is that I am a busy person and sometimes I forget to make it to the title company. I have never had a motivated seller call and check with the title company to see if I posted the earnest money. If they did, my title company would probably say something like “I have to check the file. Let me call you right back.” Next call would be to me telling me to get up there with my blasted check. Bottom line is that earnest money is bogus from the get go. If I back out according to the terms of my contract, then I get the emoney back anyway. The only hold up could be is that the seller might try to get tricky on me and not sign to release my emoney even though I backed out fair and square according to the terms of the contract. I think that is why I usually get lost on the way to the title company to make my emoney deposit.
Eric, Brandon, I agree. Motivated sellers are really happy to have us buy and emoney has never been an issue. I kept getting lost on the way to the title co so I just use the due at closing, because I always find the title co on closing/ pay day.
And yes many banks prefer a redeemable promissary note here also.
In closing, Darin