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Putting under contract with no deposit.
14 posts by 7 users
Terry R.
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I always see people mention when putting under contract to assign how do you not put any deposit down, I would think most people would naturally want a deposit, and it would be hard to convince them otherwise. Also, what have you done when you can't find an end buyer and there is no deposit. My purchase sales agreement states this: Default & Timing: If Buyer fails to perform, Seller’s exclusive remedy is to retain the earnest money as full liquidated damages. If Seller fails to perform for any reason, all loan, sales, & closing costs incurred by any party will be the responsibility of Seller; and Earnest money will be returned to Buyer; and Buyer may enforce this Agreement through an action for specific performance, the prevailing party shall be entitled to recover court costs and attorney fees. This Agreement is assignable. All parties agree that fax signatures/initials are legal & binding. This offer shall become null and void if not received/returned to the Buyer by _______ I want to modify it to say if no earnest money is given, then sellers exclusive remedy would be to void the contract? Would that work? . |
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Jason C.Real Estate InvestorKaty, Texas 
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If it says that earnest money is sole remedy, and there is no earnest money put down, then there is no remedy. So you really do not need to add that new part. I can't say that I always get a contract with no money down, but I sure do try to get as many with no money down. I usually tell them that I normally do not put money down on houses that are going to be paid for by all cash, and that the earnest money would not go to them anyways, but to the title company, so they won't see the money until closing anyways. I also state that in order for me to buy as many houses as I do that I cannot put earnest money down on each house. Typically it works if they are hesitant about no earnest money. |
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Richard W.Real Estate InvestorLas Vegas, NV 
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In most states you would need to give consideration (deposit) for a contract to be valid. The amount of the deposit could be as little as $1, but there usually must be something. 8) |
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Jason C.Real Estate InvestorKaty, Texas
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I'm definitely no lawyer, or know much about contract law, so take it all with a grain of salt. I am only telling what I have done and have been able to do through experience. I have closed many deals that I didn't put a cent into as earnest money in Houston, Texas without any problems. Am I doing something wrong? To be honest, not sure. I haven't been stopped yet, no one has said anything, and the deals have closed. Until someone tells me (like a lawyer or the title company I use) that I need to put something down, I guess I will continue to do what I do and try not to have to put anything down. |
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Terry R.
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Has this ever come back to bite you in the event you couldn't find a buyer, or couldn't close? |
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Jason C.Real Estate InvestorKaty, Texas
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Nope, it hasnt ever come back to bite me for a few reasons. In the contract it states the the only remedy the seller has is the earnest money. Second I have two out clauses in my contracts that also protect me. There have been a few that I couldnt sell, not many at all though, probably 2 or 3 total. I had 1 persone get pretty angry that the house did not close, but it really wasnt even my fault. There was misguided information and title issues. |
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Terry R.
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Has anyone ever had a GREAT deal come along where the seller insists that you put down several thousand? If so have you walked away, or dove in since you knew it was a good deal. |
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Jason C.Real Estate InvestorKaty, Texas
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I havent had to put down several thousand, but the market I work in may be a bit different than yours. To me if they are asking for several thousand down they do not sound very desperate. However, if the deal is a mind blowing deal and 100% good to go, and the only way for me to get this deal, yes I would put the money down. With that said, there are many times you can get your end buyer to actually put down the money by you requiring the earnest money and using that money as the down payment. It's a bit more complicated than that, but it works. |
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Ryan W.Real Estate InvestorAmarillo, Texas
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I only put earnest money on listed properties. I use to say that I have never put earnest money on a non-listed property, but about a month ago I gave $30 earnest money to a seller who was half crazy and very unstable, and I didn't want to mess with it. I'll speak for Texas because its the only state I've bought property in, but you do NOT have to put up earnest money to make a contract valid in Texas. I've discussed this with several very experienced real estate attorneys in Texas and they've all affirmed it. As Richard stated, contract law DOES require that you put up consideration, but the courts have determined that a " promise" to pay is consideration in and of itself, and that if you are giving a promise to pay then the requirement of consideration is fulfilled. Now I've seen discussions that this is true for every state, but I have NOT discussed it with attorneys in other states and can't say for sure either way. Normally distressed sellers do not care about earnest money. When I am buying directly from a seller, I have had probably 5 out of 150 or so even ask me about earnest money. My answer is always (well except for that 1 time Now I have NEVER bought a listed property WITHOUT earnest money. Normally I put $500 to $1000 as earnest money. Once or twice with a Fannie Mae REO they required that I put 10% of the purchase price as earnest money, so I had to put $3,000 or $4,000 down. Bottom line being that I wouldn't lose a deal over earnest money. Now something to know in Texas, if you default on the contract, which means you don't close but you are NOT using a contingency, then the other party can take the earnest money OR they can sue you for specific performance and/or damages. Earnest money is a non-judicial remedy, meaning nobody gets sued. If there was no earnest money then their only remedy would be to sue you, and I don't believe that the contract stating that taking the earnest money is their only remedy will supersede the other parties right to sue you. That is a statutory right. Either way most people aren't going to try to take it to court, but you should still know the laws. |
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Anthony S.Real Estate InvestorMillsboro, DE 
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As Richard stated, contract law DOES require that you put up consideration, but the courts have determined that a " promise" to pay is consideration in and of itself, and that if you are giving a promise to pay then the requirement of consideration is fulfilled. Im glad someone else sees that. Consideration does not need to be satisfied with cash; it simply needs to be satisfied. |
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Jason H.Real Estate CoachOakton, VA 
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I always put $10.00 down as a deposit and never any more. If the seller's want more I tell them it is " company policy" to put only $10 down. If they still complain I tell them that we know that our company is going to close on the deal, but that in the past seller's have been dishonest and we are not taking the chance of getting several thousand dollars tied up in escrow. If they still don't like it, then I walk away, which means they weren't really that motivated in the first place. |
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Mr. L.Real Estate InvestorEdison, NJ 
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Sounds good...Just say it's company policy to pay no more than what I choose..I will say that from now on |
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Jason C.Real Estate InvestorKaty, Texas
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Exactly |
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Ryan W.Real Estate InvestorAmarillo, Texas
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Walking away from a deal because you don't want to put up earnest money seems crazy to me. Now obviously if you don't have the money to put up then thats one thing, but if you have the money but just refuse to out of principle that's another thing. If its a deal then its a deal, why not put up the money? Losing $5,000 or $10,000 in profit because you don't want to put up $500 or $1000 deposit that you are going to get back when you close is not good business in my book. If its a deal then put your money where your mouth is (IF you have to, of course |
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Posted: 05/20/2008 at 09:51AM
) that I don't give earnest money and that its not required to make the contract valid. If they push I explain that the earnest money doesn't go to them directly, it goes to the title company, and I reaffirm that they don't have to worry about me backing out.