Orlando, FL · Member since 2011 · 176 posts · 23 votes
I am buying a house for $170k in Texas. The wholesaler put down $1k EMD. The HML says they can 100% bridge finance the purchase price because I'm buying it deep enough (280k ARV). I will pay closing costs. The wholesaler told me he wants $5,000 EMD.
1. Should I negotiate EMD? 5k feels high for a 170k house. I'd rather put down $1,700 in case of some issue requiring a refund.
2. Will the EMD amount I put down encourage the lender to put down less than 100%? 5k will probably be more than closing costs
3. If the answer to #2 is no, I guess the excess EMD comes back to me during closing disbursements?
4. I hear some states are "mutual release" (requires both parties to accept EMD release) does anyone know the case with Texas?
Rental Property Investor · Perry Hall, MD · Member since 2016 · 586 posts · 598 votes
3y
With rates climbing and funding sources becoming less reliable, wholesalers have been experiencing a lot of end buyers backing out. When that happens they're stuck either closing themselves, scrambling to find another buyer at the last minute, or losing the deal and damaging their reputation and costing themselves an EMD.
1) If you're serious about buying the house and this is a wholesaler you haven't worked with before, I personally wouldn't attempt to negotiate the EMD. They want to know you're serious and that they'll walk away with a minimum of 5k if you flake out. Just be aware it is likely non-refundable barring very specific circumstances such as the seller not being able to provide clear title. Read the assignment agreement carefully as it is a legally binding contract. If you don't understand it, hire a lawyer.
2) No. 5k is not an unheard of deposit for a wholesale deal. The HML will not care.
3) Your deposit will be applied towards the purchase of the property. If the HML is financing 100% of purchase plus closing costs then that amount will come back to you. Just be sure you're paying this deposit to the title company/closing attorney (not sure which Texas uses) and not directly to the wholesaler.