Ernest monies

5 Replies

I live in Athens, AL and I found 3 properties I would like to make an offer on right away.  There is a lot of schools of thoughts on earnest money.  One investor says just do $100 and just say it's company policy and it's never stood in his way.  Another investor says at least $500 and that changes with the asking price.  The higher the asking price the higher the earnest monies.  Another investor says don't mess around $5,000 because you don't want to miss a deal because you low ball earnest monies.  HELP!  If I had $5,000 you would not be reading this post right now if I could do $100 then I could make those offers this afternoon.  Even at $500 I am waiting on my car to sell to put in an offer.  The plan is to wholesale the first one so I can start my business. I say I but it's really we and our.  Having people counting on me makes me want to try anything at this point.  I don't want to insult anyone because I am looking for long term relationships and being honest and fair is just the way I want to do business.  BTW these properties are in the median range (under $200k) and with a real estate agent.  Thank you in advance for shining a light on this situation.

Hi @Sam Gibson ! You're getting what sounds like conflicting advice because there's a huge difference between what works when making an offer when an agent is involved and when there is not.

If you are dealing with a listed property, making an offer with earnest money below $1K screams "I just bought a real estate course last week and I'm nearly half-way through it!" Most agents will assume your offer is worthless and that you can't transact. For under $200K, keep it simple and just make it $1K.

When you are dealing directly with the owner on an unlisted home, the earnest money is whatever makes them comfortable. Some are fine with $100 or $500, some will want more. Just remember that what really matters is whether the seller has confidence in your ability to close. That confidence will come from your knowledge of the market, your salescraft, and your experience level. The earnest money is just a proxy.

Also, if you're low on cash you should consider partnering with another investor: You find a great deal, they put up the earnest money, they close, you get a finder's fee. That's wholesaling, in a nutshell.

Good luck!

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Thank you Mitch Messer and you are not that far off we are new (obviously) but we did complete the course, lol.  $100 just didn't seem feasible.  Thank you now I see the difference and it makes sense.  

Find out what is customary in your market. This is not a hard and fast rule, but in my market right about $2500 per $100,000 is the right amount of earnest money to put down.

We buy dozens in the southeast and $500 - $1000 is sufficient unless we are taking down commercial properties or 10+ unit multifamily deals.