{"id":5836,"date":"2018-04-21T08:00:23","date_gmt":"2018-04-21T12:00:23","guid":{"rendered":"http:\/\/camerondirect.com\/?p=5836"},"modified":"2020-05-13T14:35:43","modified_gmt":"2020-05-13T14:35:43","slug":"earnest-money-deposit","status":"publish","type":"post","link":"https:\/\/realestatewealthnetwork.com\/blog\/earnest-money-deposit\/","title":{"rendered":"Buyer vs. Seller: How The Earnest Money Deposit Affects Commitment to the Deal"},"content":{"rendered":"

In case you didn\u2019t know, an earnest money deposit is a deposit made by a buyer to a seller, typically held mutually in a trust or escrow account, and shows that the buyer is hopeful in the transaction\u2019s success.<\/p>\n

However, the question is\u2026when a house is under contract, does the investor <\/em>really need to be committed?<\/p>\n

My answer is definitely YES.<\/p>\n

But to what level of commitment should that be?<\/p>\n

And, who is actually more committed to the deal \u2013 the seller or the buyer?<\/p>\n

Each situation is different of course, but a lot of this depends on the language of the agreement and how much of an earnest money deposit you, as the investor, put up in order to get your offer accepted.<\/p>\n

So, let\u2019s look at this from both sides and then I\u2019ll share how I handle this in my own business.<\/p>\n

Who\u2019s more committed?<\/strong><\/p>\n

In a real estate agreement the seller<\/strong> is typically more<\/em> committed than the one who\u2019s buying an investment property.<\/p>\n

You can actually force<\/em> a seller to sell \u2013 that is, if you want to go through the trouble of doing so and if your paperwork is correct \u2013 by getting a judge to order them to sell for the amount they agreed to. That is called \u201cspecific performance.\u201d<\/p>\n

The buyer, on the other hand, is typically committed only<\/em> to the extent of the earnest money deposit<\/strong>. The worst thing that can happen to you as a buyer if you walk away from the deal is losing<\/em> your earnest money.<\/p>\n

Anytime I talk about the possibility of losing a deposit folks start to get nervous, so let\u2019s address it\u2026<\/p>\n

What\u2019s The Right Amount For An Earnest Money Deposit?<\/strong><\/p>\n

How much should one put down for earnest money is the age-old, tug-of-war in Real Estate investing.<\/p>\n

The buyer wants to put down $10 and the seller is holding out for thousands. But\u2026you have to meet somewhere at a point that everyone can live with.<\/p>\n

Earnest money deposits usually run at a low of $10 or up to $100 if you\u2019re working with a private seller. This, however, can go up to $500-$1,000 with a bank seller or with private sellers who are working with a Realtor.<\/p>\n

As with everything in real estate, this amount also depends on your willingness ability to negotiate<\/strong>.<\/p>\n

Of course, most people involved want you to put up more of an earnest money deposit than you want to. This will include the seller, the seller\u2019s agent, your agent \u2013 they all want you to put up more money than you really ever should<\/em>.<\/p>\n

The best way to negotiate the point is to say:<\/p>\n

\u201cI\u2019m an investor and I just cannot put up large deposits,
\nbecause I make a lot of offers.\u201d<\/em><\/p>\n

\"\"<\/p>\n

Language in the Agreement<\/strong><\/p>\n

A great way to protect your earnest money deposit is by including certain language into the agreement. This is so if the deal doesn\u2019t work out, you can get the money back.<\/p>\n

Doing this is simple...<\/p>\n

You just state in the agreement to that fact\u2026That\u2019s it.<\/p>\n

The drawback here, though, is that this reduces the power\/quality of your offer. Think about it from the seller\u2019s standpoint\u2026<\/p>\n

Say you fill the contract with a bunch of contingencies (\u201cweasel clauses\u201d as they\u2019re often called)\u2026 and the seller gets another offer with NO weasel clauses, perhaps even at a lower price. Which one do you think they\u2019re going to accept?<\/p>\n

What I like to do for my own deals, is put up the least amount<\/em> of earnest money deposit that I can \u2018argue\u2019 for (aka negotiate), and put the fewest number of (preferably no) contingencies in my offer. If I\u2019m confident in what I\u2019m buying, I\u2019ll waive the mortgage contingency, building inspection, wood-destroying-organisms inspection, etc.<\/p>\n

Need help figuring out how to make the right offer and be 100% confident? <\/em>Click here to access my 7-Step Guide to Making an Offer on a Property now!<\/em><\/a><\/p>\n

I do, however, always<\/em> leave in the clear\/marketable title contingency.<\/p>\n

And by doing my deals this way, I know full well that it is possible that I could lose the deposit money.<\/p>\n

But \u2013 after all the years of being in this business - when I make an offer, I am willing to pay that price! I know that I\u2019m going to be able to close because I\u2019ve got my funding lined up and I know exactly how I\u2019m going to make this deal work. The key is to have all that figured out first.<\/p>\n

In some cases, I\u2019ll develop a Plan A for funding AND a Plan B for funding \u2013 that\u2019s just smart business. You can learn how to do that and MUCH more at my Rapid Results Investor Summit by clicking here!<\/a><\/p>\n

Take Action \u2013 Get Results!<\/strong><\/p>\n

When you\u2019re new to this industry, you might make 10 or 20 offers only to get just one accepted. Once you\u2019ve become more experienced, you might only make 3 offers to get one accepted.<\/p>\n

You get better at making offers that get accepted, because you know what will make a seller happy and what will make them unhappy. You won\u2019t be making as many offers because you simply won\u2019t need to. You\u2019ll make fewer firm offers at what you\u2019re willing to pay, and you\u2019ll buy more houses because you become better at the game.<\/p>\n

The best thing you can do now, if you\u2019re just starting out, is to start making offers. <\/em><\/p>\n

The real learning comes from the \u201cdoing\u201d.<\/p>\n

Here are a couple final points to consider...<\/strong><\/p>\n

When making offers on bank-owned properties, the bank will add on an inspection period in the agreement that allows you to cancel the deal within the first 5-10 days following contract acceptance, and receive your earnest money deposit back. They will require it. This can be your ultimate out<\/em>. It\u2019s like a contingency that you don\u2019t have to add in yourself. You can and should use this to your advantage.<\/p>\n

The other point is that when\/if you walk away from a deal with or without your earnest money deposit, you will \u201close face\u201d to some degree with the seller and agent(s) if any. The extent of this hit to your reputation can be major or minor and is for you to determine. Either way it\u2019s a consideration.<\/p>\n

Your Take on It?<\/strong><\/p>\n

Please leave your comments below. I personally read and respond to them and I love hearing from you!<\/p>\n

Regards,<\/p>\n

Cameron Dunlap<\/p>","protected":false},"excerpt":{"rendered":"

In case you didn\u2019t know, an earnest money deposit is a deposit made by a buyer to a seller, typically held mutually in a trust or escrow account, and shows that the buyer is hopeful in the transaction\u2019s success. However, the question is\u2026when a house is under contract, does the investor really need to be […]<\/p>\n