How long should Earnest Money tie up contract?

Question

I bought a vacant lot that is zoned for commercial development. The lot is still vacant, and just had an offer from an interested party. The contract price is for $200,000.

However, the buyer is wanting to put down $1,000 for earnest money, and is requiring 180 days for a feasibility study. If the feasibility study comes back not satisfactory then the buyer can walk and be refunded his money. The buyer also has an option for another 30 days for a non refundable $1,000.

I do not want to tie up the property for half the year, and the deal fall through due to a feasibility study while not receiving anything.

Any tips or what is typical in this situation?

Christopher Phillips · Answer

Account Closed

Depending on everyone's availability, feasibility studies can take 60-90 days. Most buyers aren't going to tie up very much money in a deposit unless there is a lot of competition.

Joel Owens · Answer

You could insert a ( to right to continued marketing clause in the contract). I am a commercial broker as well as a retail developer. This way a better offer or the same offer but a quicker close comes along the buyer would need to match or could lose the property.

There is the zoning that needs to be approved if not already commercial and also the site plan approval. These things can take lots of time. With STNL tenants you get an LOI and then eventually a lease is signed with a forward commitment. Even though the earnest money might be 1,000 there is a lot of money spent on the site upfront before closing on the land. If you can't land a specific tenant to develop the property then they might not be able to give you the contract price for the land. Also if the land is very hilly with topography it can cost a lot per acre to grade it. If the ground has rock in it that needs to be blasted that can raise costs versus regular dirt. If there are streams close by then the army corp of engineers can come into play and it can take a long time to get approvals.

Feasibility studies that are up to 6 months in nature are typically for much larger properties.