The contracting parties can agree on anything they choose, whether it includes "earnest money" or not.
But, yes, it's done all the time, probably more so with commercial RE deals, as the players there are a good bit more sophisticated than the SFR home buyer & seller.
Let me give you an example because sometimes a real time instant can sock the image into your memory so you can use it latter on to sparkle your thoughts as you customize it to fit your special circumstances.
Guberhoff, owned a little store front on Sunset Blvd. He was a pain to his tenants and generated much hostility, so much they came to me and I found them another location where the landlord was not such a constant heckler. Guberhoff was upset, called me a name. I agreed with him and suggested I buy him lunch while he explored my personality at greater verbal length.
It was my suggestion shortly before desert that he divest himself of his little store front and join a cloistered order somewhere that would really restrict his contact with live humans. He agreed but decided to return to Bavaria from whence he came. There clad in lederhose and funny hats he could frolic with the sheep to his hearts content. But he had to get rid of this small lovely little commercial store front.
I offered to buy it and we agreed upon a price which was high for those days but now days can only be described as "Chump Change"
I reached into my shoe, extracted my mad money consisting of five slightly odorus hundred dollar bills. Wrote out on a legal lined sheet a promissory note for the balance payable monthly with an interest rate of 5 percent and an exploder payment of $1,000 each year as payment on principal. All due in three years.
After coffee and a boring conversation about my lack of manners and the benefits of rural life over city existance, we adjourned to an Escrow Company and at my expense they drew a Grant Deed from him to me. A regular note duplicating my prior figures, a receipt for the $500 stinkey bills, I directed them after stamping the notary to record the Grant Deed and Trust Deed. I also had him fill in a Statement of Identity which the Title Company might find usefull some time in the future.
We adjourned to the store front where I took formal possession and ordered him off the premises not to return until he had forgoten the words to Seig Heil ein Fuhref.
I have not seen him since, I paid off his note and I owned the shabby little store for many a year.
Consideration in transaction was the cash $500 which he took, and the note which he also took secured by the Deed of Trust which was mailed to him.
A simple tender of cash and note. Made him happy and gained me a property.
As a seller of real estate, I would be hesitant to accept a promissory note instead of cash for earnest money. If the buyer backs out, thereby forfeiting the "earnest money," it can by difficult to collect on an unsecured promissory note.
The purpose of earnest money is to commit the buyer and compensate the seller for losses incurred if the buyer backs out. The seller could be disadvantaged by accepting a promissory note instead of cash.
I would take issue with the above purpose of earnest money. I NEVER EVER put cash with a contract - and always promise x dollars so many days after acceptance. And this cash is totally refundable to me should the deal go south, during due diligence, for example.
Earnest money these days doesn't mean much. It is more of a symbol.
Lufos' example is a good one for a promissary note in a deal - my example is an abreviated one in the contract.
[addsig]
I agree with mysterh. Especially if you know there are more offers on the table than yours. All other things being equal, which one would you accept? Zach
My contracts read that I have given my attorney $500 earnest money for my intent of buying the property. The interesting thing is I dont bring the $500 until we reach the closing table. This has always worked with no problems.
Well, alright, we're getting a little more technical here. I wouldn't suggest handing over ten crist notes paperclipped to my offer either. What I usually do is write a check to my realtors office, and then fax a copy to the seller. So I guess I'm not at quite as much of a risk of losing the earnest money as I might otherwise be. If the deal goes south, at least the seller doesn't really hold the cash. I still think it's an incentive to accept my offer, at least a little better than the promissory note. An extra effort to do this might just give you the edge you need to make the deal. Z
In most of my transactions, a realtor is not involved. Therfore, If you are dealing with a FSBO (etc), it is still not recommended to give the seller any earnest money directly, cash or check for that matter.
If I were in the sellers shoes, I would be less likely to accept an offer with the earnest money in the form of a promissory note!
If you are buying a listed property, I doubt the promissory note would fly. Most agents want to see the green stuff.
If you are buying a FSBO, you can get away with $10. Almost by definition, a FSBO is an inexperienced player in the market and will be unfamiliar with some of the nuances. That is no way means you can take advantage of them.
If you were buying a house from me, I wouldn't touch a promissory note.
"Acceptable" ?
To whom?
The contracting parties can agree on anything they choose, whether it includes "earnest money" or not.
But, yes, it's done all the time, probably more so with commercial RE deals, as the players there are a good bit more sophisticated than the SFR home buyer & seller.
John is as usual correct.
Let me give you an example because sometimes a real time instant can sock the image into your memory so you can use it latter on to sparkle your thoughts as you customize it to fit your special circumstances.
Guberhoff, owned a little store front on Sunset Blvd. He was a pain to his tenants and generated much hostility, so much they came to me and I found them another location where the landlord was not such a constant heckler. Guberhoff was upset, called me a name. I agreed with him and suggested I buy him lunch while he explored my personality at greater verbal length.
It was my suggestion shortly before desert that he divest himself of his little store front and join a cloistered order somewhere that would really restrict his contact with live humans. He agreed but decided to return to Bavaria from whence he came. There clad in lederhose and funny hats he could frolic with the sheep to his hearts content. But he had to get rid of this small lovely little commercial store front.
I offered to buy it and we agreed upon a price which was high for those days but now days can only be described as "Chump Change"
I reached into my shoe, extracted my mad money consisting of five slightly odorus hundred dollar bills. Wrote out on a legal lined sheet a promissory note for the balance payable monthly with an interest rate of 5 percent and an exploder payment of $1,000 each year as payment on principal. All due in three years.
After coffee and a boring conversation about my lack of manners and the benefits of rural life over city existance, we adjourned to an Escrow Company and at my expense they drew a Grant Deed from him to me. A regular note duplicating my prior figures, a receipt for the $500 stinkey bills, I directed them after stamping the notary to record the Grant Deed and Trust Deed. I also had him fill in a Statement of Identity which the Title Company might find usefull some time in the future.
We adjourned to the store front where I took formal possession and ordered him off the premises not to return until he had forgoten the words to Seig Heil ein Fuhref.
I have not seen him since, I paid off his note and I owned the shabby little store for many a year.
Consideration in transaction was the cash $500 which he took, and the note which he also took secured by the Deed of Trust which was mailed to him.
A simple tender of cash and note. Made him happy and gained me a property.
Try it you might like it.
Lucius
As a seller of real estate, I would be hesitant to accept a promissory note instead of cash for earnest money. If the buyer backs out, thereby forfeiting the "earnest money," it can by difficult to collect on an unsecured promissory note.
The purpose of earnest money is to commit the buyer and compensate the seller for losses incurred if the buyer backs out. The seller could be disadvantaged by accepting a promissory note instead of cash.
Mysterh
I would take issue with the above purpose of earnest money. I NEVER EVER put cash with a contract - and always promise x dollars so many days after acceptance. And this cash is totally refundable to me should the deal go south, during due diligence, for example.
Earnest money these days doesn't mean much. It is more of a symbol.
Lufos' example is a good one for a promissary note in a deal - my example is an abreviated one in the contract.
[addsig]
I agree with mysterh. Especially if you know there are more offers on the table than yours. All other things being equal, which one would you accept? Zach
My contracts read that I have given my attorney $500 earnest money for my intent of buying the property. The interesting thing is I dont bring the $500 until we reach the closing table. This has always worked with no problems.
Never, never give earnest money to a seller!
BAMZ
Well, alright, we're getting a little more technical here. I wouldn't suggest handing over ten crist notes paperclipped to my offer either. What I usually do is write a check to my realtors office, and then fax a copy to the seller. So I guess I'm not at quite as much of a risk of losing the earnest money as I might otherwise be. If the deal goes south, at least the seller doesn't really hold the cash. I still think it's an incentive to accept my offer, at least a little better than the promissory note. An extra effort to do this might just give you the edge you need to make the deal. Z
In most of my transactions, a realtor is not involved. Therfore, If you are dealing with a FSBO (etc), it is still not recommended to give the seller any earnest money directly, cash or check for that matter.
If I were in the sellers shoes, I would be less likely to accept an offer with the earnest money in the form of a promissory note!
Ask questions, get answers!
BAMZ[ Edited by BAMZ on Date 11/05/2003 ]
Hey,
Different rules for different sellers.
If you are buying a listed property, I doubt the promissory note would fly. Most agents want to see the green stuff.
If you are buying a FSBO, you can get away with $10. Almost by definition, a FSBO is an inexperienced player in the market and will be unfamiliar with some of the nuances. That is no way means you can take advantage of them.
If you were buying a house from me, I wouldn't touch a promissory note.