Owner Listing - How to Take Offer/Earnest Money

[Grace Porritt]

I place a property on LoopNet and I already have an interested buyer for $520,000 (my listing price). H2e wants to have the first option to purchase and see if he can put together financing.  I told him I would take $500 to give him that opportunity.  I told him he could have the money back, if the deal does not work.  I do not want to give him too long....others are interested.  I am not sure if this would be called earnest money or something else.

Can someone help me with some wording for a receipt?  I just want to give him a couple of weeks for a more solid contract/agreement.  I am looking at doing a 1031. 

Thanks in advance.

[Dave Foster]

@Grace Porritt, It's not much in the scope of the sale but you need to be very careful of the trail and source of that money or it could negatively affect your 1031 for sure.

If you are simply selling him an option for a period of time your documentation will need to indicate that and that money can go to you and will not be part of the exchange. It cannot turn from purchase of an option to part of the earnest money in that case without putting your entire exchange at risk.  That also introduces an element of risk for the buyer because funds are not being held by an arms length 3rd party.  And if the deal falls through they must look only to you for refund and honoring the agreemet

If you are accepting it as earnest money then the money needs to go from him directly into a qualified escrow account with the title company/attorney that will be closing the sale.  You may not touch the funds and it will need to be accompanied by a contract for sale with terms for refund to protect him and you.

If you're going to give it back if the deal doesn't work then why don't you simply shake hands with him and give him a set time to perform.  I doubt if $500 on a $500K sale is going to hold anyone's feet to the fire.