Wholesaling Earnest Money Ideas

[Luis Aviles]

I am looking for ways to work my Earnest Money a little easier for me on the contract. I guess what I'm really asking is how do I know what amount is good enough for the contract or do we standardize!!

[Brian Tome]

@Luis Aviles

Good advice here, but I would offer the following tips to what others have said. 

There are three main things to consider when determining how much earnest money to offer:

1. 1) Is there consideration for the contract?: @Eric H. is technically correct.  Under the law, a 'promise to pay' is sufficient consideration to secure the contract.  That being said, I am an attorney and I have seen many judges find ways around binding a party to a contract where the other party had 'no skin in the game.'  Out of an abundance of caution, I would encourage you to provide an earnest money deposit sufficient to show you are serious in case anyone ever needs objective proof of that.  Also, keep in mind that unless you are doing a million dollar deal, you should avoid litigating over one of these deals, because the deal won't be worth it in the long run.
2. 2) Does your buyer know you are serious?: Sellers sometimes get antsy the closer you get to settlement or the more they think about your deal.  If you haven't given them a good reason to trust you, they start to ascribe all sorts of motives to your behavior and before you know it, you could be the "guy who is trying to cheat them out of their house."  When you demonstrate good faith in your dealings by giving them some money right up front, they don't have as many fears and you establish yourself as a professional who cares about their needs right out of the gate.  Once you have that advantage they are unlikely to change their opinion.  Also consider that in order to back out of the deal, they know they will have to give back your money.  If they have already spent it, it is a lot easier to let the deal go through than try to scrap it, and any subsequent investor trying to steal your deal would have to be willing to give them a deposit sufficient for them to pay you back, while knowing they are willing to back out of a deal with you.
3. 3) What does your earnest money deposit say about you?: Other people who hear about this deal (or who you wholesale it to) will form an opinion of your skills.  A small or no earnest money commitment says a couple of things.  It says "I don't have enough money to be in this game," "I don't have any faith in this seller," or "I don't have enough confidence in my analysis to put any money on the line."  If you are ready to invest, have a good deal, your analysis has been careful, and you have honestly sought to understand the needs of the seller and give them good options, you shouldn't have any problem putting down between $1-100K in earnest money (depending on the size of the deal - I like Eric's breakdown by price range).

Ultimately, make your deals more about serving the seller's needs.  Look for the deals where the sellers just want a way out of the property (ie. estates, moving, foreclosures, etc.) and give it to them.  Then your earnest money is like icing on the cake and you have established a position of trust that will benefit not only that deal but all your future deals as well.

Best of luck!