Is an earnest money deposit required when making an offer to purchase? I have heard it is… And I have heard it isn’t. Please clarify. Thanks in advance.
In NC, it isn’t.
It isnt required to make a purchase anywhere. Most of the time when you are working with realtors they will try to get earnest deposits. There is no definitive amount that the check needs to be made out for. Typically I see offers that I recieve come in at $300-$1000. Realtors like to try to get the earnest money as kind of an insurance policy that you will follow through on your end of the contract.
Often times you can avoid depositing earnest money by telling either the realtor or seller that “I am an investor, if I didnt want the house, I wouldnt make an offer” or “I am an investor, so I cant afford to tie my money up sitting in escrow when I have homes to work on”. These phrases wont always work but they are just another tool to ad to you arsenal of real estate weaponry.
Every foreclosure that I have ever made an offer on through a realtor has required $1,000 earnest money to even put my offer in. HUD homes require $500-$1000 depending on the purchase price.
Eric Medemar
Earnest $$ is not required, but sellers like to get it if they know what it is. A real estate agent represents the seller’s best interest, so will try to get as much earnest money as possible. Of course, an uninformed or unrepresented seller may not know what to expect, so may a miniscule amount.
A good amount for earnest in my area is about 1%. Since Austin real estate is hot, investors who don’t put much down may not be taken seriously. Once a house is on MLS or listed with a savvy agent/seller, you can expect to pay higher earnest due to multiple offers.
Agents/savvy sellers want offers that are cash, close to asking price, no option, quick close, and at least 1% of earnest. These factors are all weighed, so if you offer a small amount of earnest, the other criteria could help balance the offer.
Again, this is in my area and if the seller is knowledgeable or has an agent. Other areas of the country are becoming buyer’s markets, so you may be able to get away with no or little earnest.
The problem with earnest money is that it is credited at closing. That means that it is absorbed into the purchase price of the house. You can’t get it back until you sell the house. I can’t use it for rehab, or inspections or buying a Big Mac®. That being said, I don’t want to give more than $500. I have lost a deal (back in August and the house is still on the market) because the listing agent wanted 3% earnest money. In this deal that would have been $3000. I would have bought the house had it rehabbed and rented by now if that short sighted real estate agent had told his client to take my offer.
Correct me if I’m wrong, but couldn’t you get the deposit money back at closing as long as you state this in the contract?