What do you offer as Ernest money on foreclosures ??

Real Estate Investor · Cincinnati, OH · Member since 2014 · 55 posts · 26 votes

We have been buying foreclosures off the MLS. are offers are cash purchases no inspections and our agent has been suggesting EM of 10% of the offer price. My issue is that some of these transitions are taking up to 6 months to close. So all that cash locked up I'm EM is killing me.

I am planning on making an offer on a home path property ASAP and wanted to see what other cash buyers are putting as EM on their offers.

Thank you in advance.

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Corey Beckwith

Investor · Somerset, NJ · Member since 2012 · 47 posts · 43 votes

12y

Hi, I typically only put down $1,000 for earnest money for deals I get off of the mls. I'm from New Jersey and it may be different as a standard where you're from. However, maybe you should speak with your agent and let them know that you can't put that much money down because it's preventing you from getting as many deals as you'd like. In my experience I also found that some realtors treat us investors the same as end buyers who typically do put down more earnest money, maybe because that's what they're use to doing with the end buyers. When I come across that I usually just change realtors who understands how I operate. Or if you really like the one you're working with, just let them know how you plan to operate on your future deals and see what they say. All the best Corey

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Bill Sargeson
Real Estate Broker · Burlington, NC · Member since 2013 · 95 posts · 52 votes
12y
For me it depends on price of the property and how badly I want it. I have found higher EM offers help sometimes win against multiple offers. However I have never put up 10% EM, my range has been a low of $500 to a high of $2,000(and that was a $58k purchase).
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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
12y
REO's always 10%
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Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
12y
We have sent in REO offers with as high as 25% EMD and never less than 10%.
0 Reply
Bill Sargeson
Real Estate Broker · Burlington, NC · Member since 2013 · 95 posts · 52 votes
12y
Wow that is interesting....I have never gone near that high and never had a problem getting offers accepted...maybe I have just been lucky....definitely making me think about future offers....
0 Reply
Corey Beckwith
Investor · Somerset, NJ · Member since 2012 · 47 posts · 43 votes
12y
Hi, I typically only put down $1,000 for earnest money for deals I get off of the mls. I'm from New Jersey and it may be different as a standard where you're from. However, maybe you should speak with your agent and let them know that you can't put that much money down because it's preventing you from getting as many deals as you'd like. In my experience I also found that some realtors treat us investors the same as end buyers who typically do put down more earnest money, maybe because that's what they're use to doing with the end buyers. When I come across that I usually just change realtors who understands how I operate. Or if you really like the one you're working with, just let them know how you plan to operate on your future deals and see what they say. All the best Corey
2 Reply
Account Closed
Investor · Waynesville, NC · Member since 2014 · 408 posts · 121 votes
12y
I usually do $500, but recently I bought a house from Fannie Mae that required 10%. It certainly makes you uncomfortable putting that much down, but if you are serious its not a big deal.
0 Reply
Account Closed
Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
12y
Only serious buyers will have no problem putting 10% EM.
Joe Gore
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Christopher Leon
Realtor · Schaumburg, IL · Member since 2011 · 289 posts · 118 votes
12y
Jered Sturm as an agent I see folks put down $1-3k as EM a lot of the time. Pretty pathetic, but I guess it works. I typically don't mess with SS or REO unless it's on an auction site and I can buy it very very quickly. Last couple of auction sales (REOs) I closed within two weeks of purchase. Auction site had me put down 3% of purchase price.
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Derek W.
Investor · Kern county Riverside County, CA · Member since 2008 · 494 posts · 261 votes
12y
I've always offered the entire purchase price as EMD. I win a lot of multiple offer tie breakers that way. But I've never had one take over 30 days to close. There must be specific complications in your area that is extending the close time.
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Christopher Leon
Realtor · Schaumburg, IL · Member since 2011 · 289 posts · 118 votes
12y
Derek Walkington same here Derek. Depending on the deal of course, some REOs let you skate with just 3% down, but with other or most deals we put up 100% money and typically close within 30 days. Can't remember a time when we didn't as a matter of fact.
1 Reply
Nazz Wang
Investor · Maui, HI · Member since 2012 · 232 posts · 96 votes
12y
Derek Walkington Christopher Leon Hey Derek and Christopher, Huh this is the first time I have heard of 100% EM, good idea. What contingencies do you put in your contracts? Do you put an weasel clause in place? Nazz
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Ana Nomys
Allenwood, NJ · Member since 2014 · 92 posts · 17 votes
12y
@Account Closed We agree with you to a point..
We are from NJ and normally $1000 for earnest money works on most banked owns etc. That said we also put in the offer once the deal is accepted we will provide additional funds up to 3-10 % of purchase with-in 3-5 days and provide a letter of proof of those funds for that money (with out taking it out of the bank) from my bank and send it with the original offer to show the selling institution we are a serious buyer.
We have been doing this for about a year and a half now and we have been cutting our competition off at the knees....
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Derek W.
Investor · Kern county Riverside County, CA · Member since 2008 · 494 posts · 261 votes
12y
I don't ever have weasel clauses in any of my contracts. They are either able to sell me the property, or I get my money back. That's in all REO addendums they send to you. The only reason they couldn't close is if they have a title problem they discover, and each time that has happened, I negotiate a further discount to close with title problem in place and I fix it myself. The one clause I do add to my purchase contract is "buyer has sufficient funds to close all cash, but reserves the right to close with hard money loan assuming no cost to seller and no delay in close." This allows me to have a deed of trust recorded if I need to use third party funds.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Derek W.
that's an interesting contract twist.. and it makes sense... gives you the ability to act like a cash purchaser and use HML to actually buy.
so in essence you can leverage your cash up without having to really have the cash. past the initial amount of one property.. I like it.
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Walt Payne
Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes
12y
I guess it depends on how competitive your market is, but a higher EM will be a positive influence on getting the offer accepted. I usually put at least 10%, and have gone as high as 25% if I really wanted the property at that price. Never considered 100%, though I can see where that would help.
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Christopher Leon
Realtor · Schaumburg, IL · Member since 2011 · 289 posts · 118 votes
12y
@Nazz Wang ha ha no weasel clauses for me Nazz. I'm a shopper, not a buyer; I know what I am buying all the time and if I want the deal it's a very ballsy way to get the deal you want. Of course, if I do this I get atleast a 5%-10% discount on the property. If I have to pay list, I might do that too. But seriously, no contingencies. How strong of an offer is that? 100% down, no contingencies, close in two weeks! See, no one is willing to do it so that's why this strategy works. For clarification, it's not like we do this willy nilly either. I'll create the cashiers check payable to whomever and send a pic along with the contract but they don't get it without a signed contract.
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Nazz Wang
Investor · Maui, HI · Member since 2012 · 232 posts · 96 votes
12y
@Christopher Leon
I like it... Seriously ballsy and no one else is willing to do it! And you send a copy of the cashiers check? Goodness I am really behind in these strategies! How does the rest of the process work? Do you make out the cashiers check to the title / escrow company and then pay your closing costs at closing? What happens if your offer is not accepted?
I have been putting 3000 down, no contingencies, aiming for 25% off market. No wonder it doesn't work that well.
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Account Closed
OP
Real Estate Investor · Cincinnati, OH · Member since 2014 · 55 posts · 26 votes
12y
This is fantastic, My simple question has opened up a great forum. Also a potential competitive edge on some willing risk takers. I consider Cincinnati OH competitive so I will be adjusting my EMD% up. However I don't know if I can do 100% My last transaction took 5 1/2 months to get to closing after my offer was accepted. My fastest REO purchase took 2 months after my offer was accepted. My county is extremely behind in its processing the REO deeds. I don't understand this completely, What I do know is it takes forever.
@Bill Sargeson @James Wise @Roy N. @Corey Beckwith @Account Closed Thank you everyone for their input on this I have my new offer in with 25% EM (all I am comfortable with at this point). Hopefully It will do the trick!
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Nazz Wang
if your buying in the SF Bay Area this strategy could get costly.. A lot of the inventory that is bought out of the West coast is very low dollar... So even though they are talking 100% of purchase price I suspect many of the purchase prices are 5k to 50k... Not 600k to 1 mil that you would be spending in SF or the peninsula for a wholesale deal.
I have many times accompanied my offer with a copy of a cashiers check for the full amount. But I don't put that into escrow and there is a simple reason I don't.
On the west coast once money hits an escrow account of a major title co.. It takes both buyer and seller signing cancellation docs to release your EM... If one party won't sign the title company files and interpleader with the courts and it can take over a year to get EM back.. and the offending party is not punished in any way... Lots of EM on the West coast gets argued over in this manner. So if your going to be doing this on the west coast be sure to ask the title co. before hand how the cancellation policy is handled. and or have it stipulated in the contract that the EM is to be released back to you within 30 days of mutual acceptance and make sure that will fly.
Its one the reasons our closing are different here. For instance a bank making a loan will not send their funds in until 1. buyers funds are in and buyers docs are signed. 2. they get recording numbers from the county.. then they fund.. As they don't want hundreds of thousands tied up in escrows if the buyer will not release the funds back.
Out east and mid west its kind of the opposite I were sellers expect a check right that minute at closing, this never happens on the west coast as funds don't get distributed until there is an actual recording and recording numbers.. I was blown away the first few times I did deals in the MId west years ago when everyone got their money and the Attorney told me that he only went to the court house to record once a week.... Or like in Detroit were its so screwed up docs can take 20 to 60 days to get recorded.. Title co. then need to issue gap insurance as who knows what kind of crook could slip an instrument in between the time you buy and you actually record.
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Account Closed
Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
12y
Only new comers will use a title company in California. Used a lawyer when you put up EM.

Joe Gore
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Christopher Leon
Realtor · Schaumburg, IL · Member since 2011 · 289 posts · 118 votes
12y
@Jay Hinrichs spot on Jay. @Nazz Wang were picking up condos in real desirable areas for $60-$70k right now. So, this strategy may not work or be the best strategy on the west coast where prices tend to be much higher. Basically, I write up an offer, create a cashiers check payable to the listing company, I submit the offer and tell them I need a signature by a specific time (no signature by timeline then my deal is rescinded) once I get my signed contract, I submit the funds for escrow and do all my due diligence during the 5 day attorney inspection. Haven't had an issue where it prevented me to buy yet; then, we just close!
@Account Closed if your able to get the deal done with <25% EMD then that's just fine! We put 100% down with the expectation to close in two weeks , 30 days at most. If your deals take almost 6 months, I would be doing what your doing: put down as minimal as I can while still securing the asset. Good job!
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Account Closed
Really Joe,,, ... rare is it that an attorney closes a SFR or small investment deal on the west coast.
Big mulit and commercial deals multi millions etc yes... but even then they work with the title company and the escrow officer handles most of the duties Attorney may draft the note or Deed and review.
Maybe some of the CA investors can weight in and advise who they use for escrow closings. completely different closing norms than an attorney driven closing state.
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Daren H.
Real Estate Investor · Desoto, TX · Member since 2013 · 560 posts · 528 votes
12y
When submitting multiple cash offers with no contingencies and a large earnest money deposit, how do you guard yourself against having multiple offers accepted but you only have the cash to close on one of the deals (assume you received two signed contracts the same day)? Are you not signing the contracts when you originally submit them to the seller so that you control final acceptance after the Seller signs? My concern is the large earnest money deposit in case you could not close on one of the properties.
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James Syed
Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
12y
I usually place $500 if the purchase price is $40,000 or less. Anything over $40,000, I put at least $1000.
Hope it helps.
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