Real Estate Agent · Santa Barbara, CA · Member since 2013 · 49 posts · 14 votes
When putting a property under contract with an Earnest Monday Deposit, is it possible to lose the Earnest Monday Deposit? How do ensure we get it back if we do not find an end buyer?
Just make it subject to your partner's approval. If you have a good deal though; 70% of ARV less repairs and less your profit of course you could walk in to any REI and move that deal by the end of the meeting. Good luck and just ignore the naysayers.
Put an option period in the contract. You will lose your option period money but you can do as little as $5 for option money if the seller will agree to it.
Put an option period in the contract. You will lose your option period money but you can do as little as $5 for option money if the seller will agree to it.
the point of the E.M deposit is that you will loose it if you do not perform on the contract. The E.M. is there so people who can't actually buy the house do not tie it up or take it off the market without knowing if they can or can not close the deal.
What makes you think it is OK to tie up a property for a month without knowing if you can actually close the deal?
the point of the E.M deposit is that you will loose it if you do not perform on the contract. The E.M. is there so people who can't actually buy the house do not tie it up or take it off the market without knowing if they can or can not close the deal.
What makes you think it is OK to tie up a property for a month without knowing if you can actually close the deal?
The E.M. just makes the contract binding. I have put $1 as E.M. That amount would not entice me to close on the deal. I have backed out on deals the day of closing and still got my earnest money back. I do agree that if you don't think you can close it don't tie it up for 30 days as the seller will most likely not release your earnest money without a good excuse and that it should not become standard practice if you want to keep a good name.
That is what the option period is for. Here in Texas it is standard practice and on all TREC contracts. I would say 99% of all my deals wether buying or selling has an option period included in it. Typically 3-10 days for around $100. I get to keep it if they back out during their option period and if they don't it goes towards the purchase price of the house and vice versa. I have seen wholesalers put in 15-30 day option periods for $10-100 and the seller accept it.
I would suggest you build a buyers list and be pretty confident you have some other investors who are capable of buying a property before you put one under contract.
It would take a very stupid seller to let someone tie their property up for 10 or 30 days for $100, and all the wholesaler is interested in is selling his contract and screwing the seller unless the wholesaler finds an end buyer.
It would take a very stupid seller to let someone tie their property up for 10 or 30 days for $100, and all the wholesaler is interested in is selling his contract and screwing the seller unless the wholesaler finds an end buyer.
Joe Gore
I agree but 10-14 days for $100 of option period money happens every day in San Antonio Texas. Its just the norm. But most of the sellers do not know the buyer is a wholesaler and is not intending on every buying the house.
The problem over time is that investors as a whole get a bad reputation. But most experienced wholesalers know going in that they can move the property for a profit before their option runs out or they have cash or hard money waiting if they can't.
Texas is odd in that the state contracts have "option periods". Most do not, and yes you'll lose your deposit if you're outside your inspection period, or other weasel clauses.
If a seller is willing to accept an offer with only $1 for an E.M. deposit I guess it's their own fault for leaving themselves open to being taken advantage of.
However In my opinion its taking advantage of someone when a person places an offer on a property with no intention of actually buying said property if they cannot find someone else to buy it. It's bad practice and it gives the entire industry of wholesellers a bad name.
Just make it subject to your partner's approval. If you have a good deal though; 70% of ARV less repairs and less your profit of course you could walk in to any REI and move that deal by the end of the meeting. Good luck and just ignore the naysayers.
I am in California and real estate is quite different than almost every other state when it comes to wholesaling. For starters, the cost of coastal property is, incomparable to the rest of the US. Putting 10% of $500,000.00 is a lot different than putting 10% down on a property valued at $70,000.00, right? The EMD is a deposit towards the ultimate sale of the property; it allows me to take the property to (qualified) end cash buyers for their inspection for a certain amount of time ( 7-10-14 days) at the end of which, an end buyer either agrees or not with the figures I have given them (ARV, Rehab costs, closing costs, my fee) and they either purchase it or not. If it sells the seller and I both win, as does the end buyer. If it does not, 7-10 days is not a long time to be off the market, but, 10% of $500,00.00 is a lot for me as a wholesaler to lose. I appreciate the idea of the Option, Jason and Eric and will look into it with a local investor. As for the chicanery of being a wholesaler, well, that depends of the wholesaler. There are many without integrity or good sense. My mission is to honestly and competently serve both sides of the deal as quickly and prudently as possible. This has been a great discussion and will help me to accomplish this ~ thanks everyone! Laurie
I am in California and real estate is quite different than almost every other state when it comes to wholesaling. For starters, the cost of coastal property is, incomparable to the rest of the US. Putting 10% of $500,000.00 is a lot different than putting 10% down on a property valued at $70,000.00, right? The EMD is a deposit towards the ultimate sale of the property; it allows me to take the property to (qualified) end cash buyers for their inspection for a certain amount of time ( 7-10-14 days) at the end of which, an end buyer either agrees or not with the figures I have given them (ARV, Rehab costs, closing costs, my fee) and they either purchase it or not. If it sells the seller and I both win, as does the end buyer. If it does not, 7-10 days is not a long time to be off the market, but, 10% of $500,00.00 is a lot for me as a wholesaler to lose. I appreciate the idea of the Option, Jason and Eric and will look into it with a local investor. As for the chicanery of being a wholesaler, well, that depends of the wholesaler. There are many without integrity or good sense. My mission is to honestly and competently serve both sides of the deal as quickly and prudently as possible. This has been a great discussion and will help me to accomplish this ~ thanks everyone! Laurie
Wholesalers are typically dealing with distressed sellers so they are not negotiating from a position of strength so zero to minimal EMs are the norm; even in CA as well as generous "out" clauses for the wholesaler.
In California per the California Association of Realtors contract sellers have 7 days after acceptance to deliver the buyer all reports; title, hazard disclosure, HOA documents, transfer disclosure statement, lead, Megan's list, smoke detector/water heater, etc.
The buyer has 17 days after acceptance to complete all buyer investigations (yes this means physical inspections) approve all disclosures (such as megans law, lead, earthquake, title, HOA etc) during this time the buyer may request repairs or credit for repairs such as a price discount based on findings and the seller is not obligated to respond to such request. At the end of the 17 day period the buyer must do one of two things either cancel the transaction and yes get their deposit back or remove all contingencies.
This is all spelled out and easy to understand on page 5 of 8 of the California Residential Purchase Agreement (RPA-CA)
the point of the E.M deposit is that you will loose it if you do not perform on the contract. The E.M. is there so people who can't actually buy the house do not tie it up or take it off the market without knowing if they can or can not close the deal.
What makes you think it is OK to tie up a property for a month without knowing if you can actually close the deal?
The E.M. just makes the contract binding.
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You are confusing earnest money with consideration.
If you can find a seller willing to accept your purchase contract without you putting up any earnest money, more power to you.
From a seller's perspective the earnest money is an indicator of your strength as a buyer and your ability to close the transaction. Nothing more.
Our company provides wholesalers with earnest money deposits up to 40,000 a deal nationwide. For details on how we are helping the experienced wholesalers please visit www.emdfunding.com for all the details of our program.
@elliot grochal When I'm working with off-market properties, I have the buyer sign an Non-compete/non-disclosure agreement with a term of at least 1 year.