Wholesalers: Earnest money or Option money?

Bird Dogs, Wholesaling
1

When wholesalers gets a property under contract do they pay earnest or option? I’ve heard both but I’m not sure what the case is with both. I’ve heard earnest money isn’t repaid if the deal doesn’t go through, yet I also hear that there is a time range (within 2 weeks) that earnest money can be repaid if the buyer finds problems with the property not accounted for. What about option money?

I’ve also read that with FSBO’s you can get a contract and put $1 down. Why is this? Is it because realtors, unlike owners, ask for $500 upfront to put a property under contract? Is this earnest money or option? Is it $1 just so that it is legal and binding?

Help would be nice! I’ve been searching all over the internet but I can’t find an answer!

2

You can find a good definition/explanation for earnest payment on wikipedia.

All the best,
~Slim~

3

Generally $1-$10 for an Option to Purchase a FSBO. $500+ earnest deposit for a Purchase contract on a REO or Foreclosure. Every deal is different, this was just a general statement. Herbster

4

Realtors have their own view of a transaction. Remember that they don’t get paid until the deal closes so they have every incentive to make a deal close. They will therefore tell you that you must put down $X (where I have seen X being 3% of the purchase price). My answer in dealing with Realtors is “that’s a deal breaker”. Stick to your guns.

I explain to Realtors that I have so many deals out at any one time, I prefer to escrow with my own attorney. Sometimes they will bite, and sometimes they will say that the seller’s agent insists.

Remember that this is a negotiating business, and you have every right to negotiate the up front money. BTW, options do not work for bank owned properties.

5

Everyone is correct. Earnest money is what you give a owner for your interest in his/her property. It really depends how much, you have to invest. Some of us start with the owners instead of realtors because of the limited cash on hand. But it depends on who you want to deal with. Sometimes deals don’t close, that’s why we give a small deposit for that reason.