Quick question re earnest money (well a few questoins really).
I got a list of foreclosures from a realtor I will be seeing next week to view any I’m interested in, for every property he asks for proof of funds and $1000 earnest money. My question is : What happens if I make an offer, give him the $1000 earnest money and then for some reason the sale doesn’t go through? Do I loose the earnest money? Is there any circumstance where the earnest money gets returned if the sale doesn’t go through? If the sale does go through does the $1000 come off the sale price?
It sounds like the earnest money is going to the realtor in which case is this just him making a quick buck (or a quick 1000 bucks) from every one who tries to buy a property through him?
you will not lose the earnest money. It will be applied to the principle balance of the loan. Never make out the check or money order to the realtor. ask him/her what “escrow” account they would like the money deposited and do it yourself.
I don’t use hard cash for earnest money. I use a promissory note. that way, I don’t have any funds tied up.
as for proof of funds, the realtor just wants to see if you are serious or wasting his time. you are not onligated to show proof of funds nutil you close the transaction or otherwise stipulated in a contract.
my advice … find a new realtor to work with. they sound like an ameteur anyway. you want a professional who will work with you.
ps. use a title company to find the same list of foreclosures that the realtor can get…it is free also! just ask some of the big title companies in your area.
in oklahoma earnest money is made out to and cashed and deposited by listing broker. I have never heard of any seller being willing to take a promissory note in lieu of currency for em, that would not be in the seller’s best interest ever.
I don’t believe there is a “Law” or “Statute” that stipulates this action in Oklahoma.
you can use this technique in OK also.
you are only doing what you are told to do by the listing broker. If the broker wants to sell the property for his client, he will surely allow you to deposit the funds into an “escrow account” of your choice. You just need to be more assertive with the broker.
In my experience, the broker wants to be in control. if he doesn’t feel in control, he will squash the transaction because he is either not experienced enough, not looking out for the clients best interest, or doesn’t understand what you are trying to accomplish.
Brokers don’t like to be told how the transaction will unfold. they feel out of control.
my conversations with them typically will result with them understanding that it is MY MONEY and I will dictate how it is utilized, not them. Just be polite. this is a small industry for investors and you do not want a bad reputation for being an A**.
Think about what “earnest” money really is. it is a promissory note held by an escrow company with instructions to give it to a benefactor under the guidlines of the “earnest” instructions. If one person fails to complete his obligations as stated in the contract, the “escrow” company will deliver said monies on account to the appropriate party. If you use a promissory note you are legally bound to pay if you do not hold up your obligations under the contract. it is simply not secured with cash.
simply stated … it is a promissory note secured by hard cash. once you make this distinction, you will understand how it works.
either way, if you are serious about a property and make an offer on contract, you will be obliged by your contract. it is all merely academic.
In offers that I make, especially for bank owned property I write in the offer “$1000 (or whatever amount) payable upon acceptance of this offer” that way I don’t feel like I am wasting my time writing out checks for no reason if the offer doesn’t get accepted. The realtor I work with knows I am good for the money. Graciez
what recourse do you have to get your $1000 back. it looks like all I have to do is accept your offer and its payday for me, regardless if you purchase the property or not.
as mention by another poster about OK, I have had seen a similar style of transaction in parts of VA. And, yes I did ask why and how it works was explained. In most cases, the check is not cashed until escrow has been open for several weeks and its is clear that the deal with close. I don’t even think about such things because IF my funds were mishandled it would be fairly easy to get them back thru small claims court, complainst through the state license board ,etc. Any legitimate broker/ re agent is going to be interested getting a deal to close; not stiffing a client out of a $1000 earnest money check.
I have never used a promissary note, but to me as a Seller it makes me question how serious a buyer is. There are a lot of flaky people in this world (especially in real estate) and if your not willing to put $1000 to secure the contract, then I’m taking all the risk as this “promissary note” is practical worthless if you bail out of the deal for some reason not allowed by the contract.
Everybody has their own way of doing things, but I like to focus on the core issues which is price and associated cost of obatining the property; not trying to “call the shots” on minor things like how escrow money is handled. I’ve been part of very large contract negotiations outside of real estate (300 pages contracts, $20M+) and from my experience, getting defocused from the core terms and outcomes of the contract is what leads to realy screwed up deals. That is not to say that I am not a details oriented person and watch every term and contarct, but don’t try change the standard way of doing business or the boiler plate contract unless it is really necessary. All it does it set up and adversarial stance in the deal (IMHO).
Stay focused and get the deal done in an efficent manner as possible.
Hey,
When dealing with motivated sellers without a realtor and in Texas, I have never put down more than $10 earnest money and $50 option money which goes into an escrow account at the title company. This past week I did my first deal with a reator involved. She suggested $1000 earnest money, I said, “No. It will be $50.” She wrote up the contract.
Peace,
Richard
in most states, the offer is contingent on “home inspection”, appraisal and you also get some days[think its 17 in CA] to bail just coz you feel like it.
you can put in offer subject to partners approval so you can weasel out for any reason and get ur EM back.