Earnest money standard for private deals (or any deals)

7 Replies

I'm planning on closing a deal with the seller and we agree to the whole contract except for the earnest money. He wanted $1000 in earnest money at signing while I want (and really can afford) only $100. He came back and said it was a standard is 1% of purchase or minimum $1000. How should I approach this? Is that a true standard in business? I thought earnest money is to just bind the contract until closing.

The standard is whatever you two can agree upon. Like everything else in RE it is up for discussion. Personally though if there is little to nothing keeping you from walking away then the rest of the contract doesn't mean much. In our area a $100 EMD is as good as a $0 EMD. However in Texas I know they have some $100 look period.

Good Luck!

Depends on customs that will vary with each state. I almost never use E/M (Texas) because sellers don't care as long as I'm solving their problem. A seller who has little motivation may negotiate hard on every aspect of the contract. 

@Asher Carr ,

That can be a little troublesome.

When I purchase a property, I usually have to bring some money to the table.  The earnest money is just part of this.

Like @Mike Cumbie and @Guy Gimenez have mentioned, the earnest money is negotiable and can be different for every deal.

I don't think 1% is excessive.  If I am going to ask someone to take a $100k property off the market in today's market, I need to show them that I have the resources to close the deal. 

If I were selling today, with a 30 day to close, I would ask for a generous earnest money payment because I want to make sure that the buyer can easily close the deal, and I don't want to have my property under contract right now unless it is with a buyer who has some funds. 

If it is a slow market and the property has been sitting there a long time, then you can probably get them to lower that.  

I would see about getting a small loan from someone of break into your savings or whatever to see if you can get that money if this is a great deal for you.  

You may also want to speak to your lender and make sure they know exactly how you are doing financially and make sure they are going to loan you the money you need to complete your transaction. 

Good luck with this deal.... Let us know how it goes.

@James Call Thanks everyone. I better understand the importance of negotiating EM now. I was able to close deals with $20 but those were slightly different. This is a steal if anything. He's selling for $40K and just asking for $1000 to bind it and payments start in October for this rental so I'm asking for that loan now. I'll keep you posted.
Originally posted by @Guy Gimenez :

When I sell, I sell on the retail market so I ALWAYS require earnest money. Buy side and sell side contracts are very different animals for me. 

  Can you please explain what you mean by that sir?

My buy-side contracts are structured very differently than my sell-side contracts. Not unlike builder contracts favor the builder, I want my contracts to have terms and conditions favorable to me, depending on which side of the transaction I'm on.