How much earnest money to put down on a REO/foreclosure?

Question

I put in a offer on a foreclosure here in GA and the LA responded after 3 days saying that they wanted highest and best. My first offer was 5k above asking but I only offered 1k of earnest money. I didn't realize that people typically put in a higher EMD. I was thinking about increasing my offer a bit and putting in a 5k deposit. Will that be enough or should I go higher. The deal is a no diligence deal so I'm a little hesitant about dropping too much on my earnest deposit. Any advice?

Lynnette E. · Answer

You may already be the highest bidder.  The ask everyone to resubmit an offer.  I would bet you are the highest, if that is what you think and you want to  make your offer better, don't increase the EMD, just do what you can to show you can close-you have proof of funds or loan qualified.

Benjamin Aaker · Answer

If this is an REO then you're dealing with a bank and they are looking at the money. $5k over asking price on your initial offer was already pretty good. I agree with @Brandon Sturgill that the earnest money is unlikely to be a huge factor here. If your top dollar is higher than your initial offer, I recommend to increase and resubmit, but don't let the fear of losing the deal make you go higher than your analysis allows.

Duane Alexander · Answer

Welp I have some good news and bad news. I lost out on the offer. Can you believe that? 15k above asking and the LA told me that my offer wasn't anywhere near the top. The good news is that this would have been a HORRIBLE deal and I actually rescinded my offer before the LA could reject it. The house was actually listed wrong. It was listed at 1100 sqft when it was actually 2700 sqft! I knew the square footage was off when I walked the house as it felt bigger but I thought it was because of the added 2 car garage that was framed as apart of the house. The square footage I saw on prop stream was also different than what was on the mls (1026 sqft vs 1129 sqft). Confused, I sent my contractor to take a deeper look at the property to verify the square footage, and take a look at the addition. He also pulled the permits which showed that the house was actually 2700 sqft. The framing was not permitted and completely shotty (the current condition of the house is completed gutted with new framing). This of course doubled my rehab estimate from 100k to 200k+. I really dodged a bullet this one. If they would have accepted my offer I would have been out of 5k escrow. I'm disappointed but this was definitely a learning experience.

Benjamin Aaker · Answer

Sounds like you have your numbers figured out. Good luck with the offer!

Duane Alexander · Answer

So with my numbers my max offer price is 15k above asking which would put me at 70% of ARV minus repairs, which would be a killer deal in this neighborhood. I ended up increasing my offer from 5k above asking to 12k above asking. I also increased my EMD to 5k since I had an agent friend suggest that 3% of asking would be a good EMD for a foreclosure. I'll let you guys know how things go.

Steve Morris · Answer

In OR, usually they want cash in 24 hours along with a big check ($25K-$50K) immediately if accepted.

I guess it depends on the lender that is hurt.  Also, 98% of the time stuff will sell for debt, fees, interest and penalties since the bank sends a 3rd party to bid that amount.

Duane Alexander · Answer

So is it not typical for people to put higher EMD's in for REO's?

Brandon Sturgill · Answer

@Duane Alexander EMD is typically not a requirement....but in reality, it's not a huge factor. In your case, it might make a difference, but it sounds like you are already driving the price higher than expected. If your offer and another offer are the same dollar amount, and they have more EMD, would they win the deal?...maybe.

The bigger qualifier is the strength of the buyer. If it were my listing, I would start to interview buyers and ask them some questions about pre-approval, and experience in the asset class and price point. It's pretty easy to determine who the most qualified buyer is. Have you thought about submitting some sort of 1-pager with your profile or experience? Are you being represented by an agent?

How much earnest money to put down on a REO/foreclosure?

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