Investor · Evansville, IN · Member since 2015 · 36 posts · 7 votes
I have heard of people making an offer on a property and submitting a large sum of money as earnest money to show how serious they are. Sometimes I hear of the amount being the same as the offer.
I want to attempt this strategy on my next purchase, as I may have competition, but my earnest money will be smaller then an the offer. Example:
Asking price: $50,000
Offer: $35,000
Up front earnest $: $10,000
Question 1: in this scenario do you think the $10,000 earnest check have any kind of wow factor?
Question 2: Will the earnest money go towards my down payment and closing cost, or Will it be purchase price -10,000+ down payment + closing cost?
Question 3: do you suggest a better way of adding a wow factor to an offer?
$10,000 EMD on a $50,000 purchase prices is certainly pretty big (20%!). I usually put $500-$1,000 down... But apparently this depends on where you are buying. I have heard of places (usually high-priced metro areas) where 3%-10% is the norm. I think in the Midwest 20% EMD is pretty impressive.
I am not sure I understand your second question. Are you asking if the EMD will reduce the purchase price? If so, no it won't. The title company will just count it towards your down payment and closing costs with the original agreed-upon purchase price. I.e. Purchase price = $50,000, EMD = $10,000, down payment= $10,000 (20%), closing costs= $1,000. Assuming you are financing this and have a 20% down payment, you would need to show up at closing with a check for $1,000, as your EMD would cover the DP.
There are many ways to add a "WOW" factor to an offer. They all revolve around knowing what the seller needs. If they need the money quickly, your WOW factor could be a 2-week close (not gonna happen if you are financing through a bank, though). If they need time to find another dwelling or they can't move into their new place until 2 months later (sometimes happens with residential RE), then offer them to stay until they have to move (paying rent, or free- whatever it takes). If they don't want to make any repairs, offer to buy as-is, regardless of what the inspection turns up. You get the idea.... The key is to find out, through their agent if they have one, or from themselves, what they need/want, and to find a way to give it to them that doesn't cost you too much. Good luck!
$10,000 EMD on a $50,000 purchase prices is certainly pretty big (20%!). I usually put $500-$1,000 down... But apparently this depends on where you are buying. I have heard of places (usually high-priced metro areas) where 3%-10% is the norm. I think in the Midwest 20% EMD is pretty impressive.
I am not sure I understand your second question. Are you asking if the EMD will reduce the purchase price? If so, no it won't. The title company will just count it towards your down payment and closing costs with the original agreed-upon purchase price. I.e. Purchase price = $50,000, EMD = $10,000, down payment= $10,000 (20%), closing costs= $1,000. Assuming you are financing this and have a 20% down payment, you would need to show up at closing with a check for $1,000, as your EMD would cover the DP.
There are many ways to add a "WOW" factor to an offer. They all revolve around knowing what the seller needs. If they need the money quickly, your WOW factor could be a 2-week close (not gonna happen if you are financing through a bank, though). If they need time to find another dwelling or they can't move into their new place until 2 months later (sometimes happens with residential RE), then offer them to stay until they have to move (paying rent, or free- whatever it takes). If they don't want to make any repairs, offer to buy as-is, regardless of what the inspection turns up. You get the idea.... The key is to find out, through their agent if they have one, or from themselves, what they need/want, and to find a way to give it to them that doesn't cost you too much. Good luck!
Be careful waiving the home inspection contingency unless you fully understand the condition of the home. You will inherit any major issues that turn up with little recourse without an inspection.