Earnest money deposit vs Proof of funds

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Earnest money deposit vs Proof of funds

Janet Thaxton
IT Analyst · Baltimore, MD · Member since 2015 · 43 posts · 24 votes
I am about to close my first "small" deal! Yessssssss The buyer wants to pay the full amount of the property at closing. So i suggested proof of funds. He is going to give me a bank statement. My mentor says that since the buyer does not have the Earnest money deposit that he should use his own Title company to close the deal. The buyer doesnt have his own Title company because he asked me to provide. The mentor doesnt think the buyer is a true cash buyer. I do. Should i still use the same Title company for the buyer or let him find his own. The deal may not go thru and i am excited to close my very first small deal. Your thoughts??
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
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Buyer picks the title company in Maryland. However in Baltimore there are a lot of bad title companies, which is why half the properties in the city have title problems. I'd make sure that whoever picks the title company, that it be a good one 

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  • Sky Mikesell
    Principal · Charlotte, NC · Member since 2010 · 200 posts · 89 votes
    10y
    How far away is closing date? If 5 days I understand the buyer wanting to keep it convenient if 30 days he HAS to put down EM that is too long to wait to see if he is telling the truth. If he is lying it doesn't matter what title company he doesn't end up closing with.
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  • William Morrison
    Investor · Silver Spring, MD · Member since 2014 · 178 posts · 60 votes
    10y

    I'd ask for earnest money.  It can be a small amount.
    For proof of funds, I'd rather have a letter from the bank signed by the bank manager.  Then you have someone to call.  My bank here in Maryland does it for free.
    I'm not sure how the earnest money is connected to what Title company should be used.

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  • Janet Thaxton
    OP
    IT Analyst · Baltimore, MD · Member since 2015 · 43 posts · 24 votes
    10y
    I didnt think it mattered. Closing will possibly be in 5-7 days. Thanks for your advice!
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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    Buyer picks the title company in Maryland. However in Baltimore there are a lot of bad title companies, which is why half the properties in the city have title problems. I'd make sure that whoever picks the title company, that it be a good one 

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  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
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    @Janet Thaxton reading your post I think you got too exited about the deal and want to believe your buyer. A buyer without proof of funds will typically not be taken serious by agents or sellers. He will be looked at a tire kicker and a waste of time. Earnest Money underlines the committment of the buyer: it basically says here are x Dollars and you can keep it if I should not be able to close on the deal.

    My guess is your buyer is a rooky wholesaler who is still looking for a cash buyer on the other end. That's fine, but you need to have some earnest money from him for your time and effort dealing with him. This way he has skin in the game and an incentive to close the deal, because otherwise he will loose his EM.

    I look at it this way: if you get the deal then good for you, if get burnt you will learn a huge lessen on a small deal that will benefit you for the rest of your life. Be careful and good luck!

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  • Sabrina Kane
    Houston, TX · Member since 2015 · 111 posts · 155 votes
    10y

    @Janet Thaxton sometimes you will find that some "buyers" are really cowholesaers. So you have specifically ask them. You would not want a cowholesaler tieing up your deal just because they showed proof of funds. 95% of true buyers will have no problem putting down earnest money to lock in the deal. 

    I always require it, and if its a large deal then proof of funds in addition to earnest money.

    So ask this buyer

    Are you the buyer or are you co wholesaling (bringing a buyer to make a profit from the sale)  ?

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  • Richard Recuset
    Residential Real Estate Broker · Miami-Doral, FL · Member since 2015 · 39 posts · 13 votes
    10y

    Marcus A.  and @Sabrina Kane are right on. Got to pay to play. No money no honey! 

    I don't know if you're sleeping well, but I bet your buyer is. The buyer has nothing to lose. Not good business practice. If you're running with this deal try to find a backup buyer.

    All the best,

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  • Ned CareyPro Member
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    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    10y

    @Janet Thaxton  I am assuming you mean he wants to pay in full at settlement and not put down an earnest money deposit. That is an absolute no for me. If he really is a cash buyer because he has the cash on hand and intends on closing; there is no reason for him to balk or hesitate in any way about giving an earnest money deposit.  He has the money, he is going to buy the property, why the hesitation? 

    As @William Morrison said I don't see the connection between an EMD and who the title company is.

    And what if it isn't? Let's say then he says he needs 3 more days. What are you going to do then? You have zero leverage without an EMD.

    My answer would be "since you are  going to be paying in full in only 5 days why don't you deposit the entire purchase price with the title company today and we have a deal."

    A good title company is important as @Russell Brazil says. I always want to pick the title company. You want to control your deal and having it with a title company that knows you and you trust is important. Despite what Russel says i have never had a clear answer for either title companies or attorneys about the requirement for the buyer to pick the title company. Russel if you have a specific reference i would love to see it.

    PS I see the original message was from 6 days ago so ignore my advice since you have probably already closed and put the check in the bank right?

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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
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    Originally posted by :

    A good title company is important as says. I always want to pick the title company. You want to control your deal and having it with a title company that knows you and you trust is important. Despite what Russel says i have never had a clear answer for either title companies or attorneys about the requirement for the buyer to pick the title company. Russel if you have a specific reference i would love to see it.

    I think RESPA is the applicable law relating to buyers picking the title company. However I think it only applies if there is a mortgage involved, and not applicable to all cash transactions. One thing I am unclear on is RESPA is federal law, and I believe there are other areas in the country where the sellers does customarily pick the title company, so I'm not sure how that jibes together.

    Now even though a seller can't make a buyer use a particular title company, you do see it all the time in the market, especially competitive markets. If you want your contract to be accepted you are dealing facto forced to do anything a seller wants.

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  • Ned CareyPro Member
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    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
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    @Russell Brazil that was my thinking, that is was federal law and only applied to settlements with mortgages. 

    I used to write in my contracts "Buyer is free to chose any title company, however is  buyer chooses any title company other than XYZ Title they buyer agrees to pay an additional $500."

    My experience has been only when, but every time, the buyer chooses the title company there is a problem.

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