3% Earnest Money Deposit???
A property for sell represented by a realtor, with 12% equity. Purchase price 400K, comp 450K. The customary earnest money deposit here is 3%. I don't know about you guys, but 12K is a lot. I tried negotiate but realtor says no, he has some comments about us investors who want to do creative deals with minimum cash instead of conventional home buying, I could care less what they think. But should I walk? Should I avoid listed deals with realtors?
I'm having the same problem. I have not found a realtor to work with. Therefore, I plan to stick with FSBO deals.
I will stick with pre-foreclosure, motivated seller and FSBO, too. I wonder if the FSBO would require that if they know it's the market rate for deposit?
Well, I'm unaware of a minimum required by law on earnest money... a 3% quote of "customary" earnest money is a suggestion.... If they refuse to accept less with a written offer to present...I would make a phone call to their broker and rock a boat...the Realtor has a fuduciary responsibility to present all offers...I would check into it....
Good question. I'm working on an offer and the bank wants 2k earnest money. I told the agent noway 500$. She said we could present offer but the bank might still require the cash. I don't think it is the agent . I think it is the bank. I thought about if they accept the price for the house and want more money, then I would up the offer price by 1k to offset.
Has anybody else had any success with this?[ Edited by bgbg1 on Date 10/06/2003 ]
Earnest money is just that. Don’t expect too many $400K popery owners to take you "severely" serious with a $4K or less deposit. Anyone can up with that. It never hurts to ask but do expect to them to have you repeat your request with a funny look on their face. Some parts of the country you can get way with $500 down, in my market of Chicago, you might be able to do that with buying and selling parking spaces in condo buildings. Remember - never give up, never give in. Always, always keep trying to find the "right", "next" property owner who will work with you on favorable terms, Favorable terms does not always mean 'your" terms. Remember not to make a fool out of yourself by asking for ridiculous terms. Remember the more far out you get from mainstream finance, the trickier, costlier and more involved it will be just to do one deal.
Respectfully,
Phil ~
Phil,
On this particular statement, I couldn't disagree with you more... But then again You are viewing it through the eyes of a Mortgage Broker and I'm viewing it through the eyes of a Creative Real Estate Investor...
Interesting choice of words....Powerful !
Dave
Quote:
Remember the more far out you get from mainstream finance, the trickier, costlier and more involved it will be just to do one deal.
Respectfully,
Phil ~
Thanks you guys.
bgbg1--
3% is the earnest deposit IN ADDITION to the requirement from the bank's downpayment. It's BOTH.
Phil--
While your statement is well-written, I'll have to disagree with you. I think me not paying that much deposit is not ridiculous, because customary is another word for what everybody else does in this area. We're not everybody else, investors only represent 1% of buyers in the country. Maybe the owner is not motivated enough and it wasn't a deal to begin with, in which case I will move on to next. Or I can follow up with him again after 2 months if his listing expired and no takers. By then he would be exhausted by many buyers and that's when I come in to the rescue.
EXACTLY Wealth!
First find a realtor who will work for you. Then explain how your proven creative purchasing techniques will work. This is what we did. Finally, take the realtor by the hand one afternoon (on the computer) and find the hot rental areas, anxious sellers, expiring listings, vacant units, and out of state stuff. You then perform the sweat equity and canvas the neighborhood with the print outs! Do your realtor a favor and create a portfolio the ALL the properties you visited, demonstrate how you value the help, explain the due diligence/evaluation process. If possible immediately strike with an offer on 3-4 units. Before long you have created a level of integrity and demonstrated how you do business. Put your investor cash flow machine into overdrive and reach your goals.
Eric & Rosa
[addsig]
The deposit is just another of the tools in your tool box. Use it wisely! Depending on the situation, you may want to offer a personal note, a secured note, personal property, a minimum amount of cash or a check to be deposited upon removal of a contingency (which may never happen!). When going up against multiple offers and "overbidding" I have found that a $50K deposit has a good chance of getting me the property for less than the other offers. All my offers have at least 1 contingency (Weasel ) clause. If you can get it all back anyway, don't lose deals over the amount of the deposit. (Unless you don't have it to put down.)
When presented with "It's customary around here to ............" , I love to do something different, just to get negotions going. I am always present at all presentations, so I can explain my side to the seller.
Eric and Rosa,
Excellent advice. There are so many "For Rent" sign in my neighborhood up for months due to job loss and population loss. These landlords used to make a bundle but now they're suffering. They depended on tenants pay their mortgage. If no tenant and they can't afford, they could be motivated sellers. I will make some flyers to hand out to neighbors. Could you PM me and give a few pointers on things I should stressed on my flyers?
Thanks a bunch!
I beleive the 3% represents by law the amount the sellor can keep of any funds in escrow past the Due Diligence period if buyer fails to perform on the purchase of property. That is why it is such a customarily requested number.
The realtor that told you this....Is he the listing agent or your realtor?
There are no earnest money standards. Any given seller may require a certain amount, but that is ALWAYS negotiable.
rwwrrr2,
That's not correct. Buyer can take back the earnest deposit if the contigencies on the contract (liens, financing...)are not satisfied, at this point buyer would not be breaching the contract. Only time when seller can keep deposit is when buyer breach contract even all contigencies are satisfied.
Hibby76,
You're right it's not law, that's why I sad CUSTOMARY. It also goes without saying that it's always negotiable---only that in most case a realtor won't negotiate.
Wealthrabbit.
Its not up to the realtor to negotiate anything! Can present and advise client, but must present all offers, even with Zero Deposit, $1.00, a note, post dated check, Case of dried apricots or whatever. ALL OFFERS MUST BE PRESENTED TO SELLER! Even if in escrow and about to close the next day!
A Broker/Agent/Realtor cannot dictate to the buyer what is to be offered on the offer.
rwwrrr2 - you've got it right. The seller can keep up to 3% under those conditions where he can keep anything, here in Calif where you and I live. For that reason there is no benefit to the seller to ask for more than 3%
I would think that a realtor has the legal obligation to take all offers to the client he represents and that he doesn't have the final authority to say whether the earnest deposit is an absolute requirement. I think we have all experienced that the fsbo are easier to deal with.