Who pays the earnest money deposit?
Investor · CT · Member since 2023 · 141 posts · 29 votes
Who pays the earnest money deposit?
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Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3yYou pay the earnest money deposit initially. And you also require an earnest money deposit from your cash buyer. Your deposit gets refunded to you. The cash buyers deposit is applied towards the purchase price. And is nonrefundable.
18 Replies
- Member since 2023 · 20 posts · 12 votes3y
Quote from @Peyton LaBarbera:
I am a bit confused on this topic so lets just get started. First off I was wondering if as the wholesaler do I have to pay a earnest money deposit to the seller or does the cash buyer do that since I am assigning the contract over to them. If I have to put down an earnest money deposit made out to the seller do I get that back when the deal closes and when the cash buyer buys the property or is that put towards fees/taxes I will have to pay? Also as the wholesaler should I ask for earnest money from the cash buyer or not, thank you.
Hi Peyton,
As a wholesaler, earnest money maybe required to secure the contract with the seller, and the cash buyer usually takes over the responsibility for the earnest money deposit.
Whether you get the earnest money back depends on the contract terms. It's common for wholesalers to ask for earnest money from the cash buyer as well.
hope it helps!
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
You pay the earnest money deposit initially. And you also require an earnest money deposit from your cash buyer. Your deposit gets refunded to you. The cash buyers deposit is applied towards the purchase price. And is nonrefundable.
- Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes3y
@Peyton LaBarbera EITHER actually. If you already have a buyer lined up vs marketing the deal to go find a buyer after you sign a contract with the seller, then you can have your end buyer send the EMD.
If you don't have a buyer lined up right away and let's say your contract says EMD within 3 days, then legally YOU should be submitting EMD within those 3 days to secure that contract or else it could be null & void if you don't.
I used to simply have $100 as EMD on my contract, only rare cases was my EMD higher. For my buyers it was a min of 2k but usually up to 5K non refundable to make sure my buyers were serious in the event I was working with someone new to me. Yes 100% you should make sure that your buyer is serious and submits EMD, I would suggest it being non-refundable but also in your assignment make sure that the EMD goes to you (minus what you owe to the seller) if the buyer backed out last minute and screwed you and the seller over, making sure you can then pay your seller the EMD as promised on the contract if they didn't allow you to continue trying to find a replacement buyer. This is where transparency with the seller is important.
If you submit EMD then later your buyer submits EMD, you can simply request your EMD back from the closing team or you can have the closing team add that to your assignment fee and allow the extra EMD to be applied to your buyers. It's all a wash at the end either way. - Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes3y
Quote from @Peyton LaBarbera:
I am a bit confused on this topic so lets just get started. First off I was wondering if as the wholesaler do I have to pay a earnest money deposit to the seller or does the cash buyer do that since I am assigning the contract over to them. If I have to put down an earnest money deposit made out to the seller do I get that back when the deal closes and when the cash buyer buys the property or is that put towards fees/taxes I will have to pay? Also as the wholesaler should I ask for earnest money from the cash buyer or not, thank you.
Of course, YOU need to put it down and of course you get it back . PLEASE do not attempt to do deals ,,,,,,yet. Please get to your local RE meeting, learn then apply what you learn. Also YOU need to ready to close if you can't find a buyer.
Good luck
- Investor · CT · Member since 2023 · 141 posts · 29 votes3y
@Bob S. Don't worry I am still in the learning process I don't intend to step within 6ft of a contract or start to attempt to make deals before I fully understand all the ins and outs of wholesaling
- Investor · CT · Member since 2023 · 141 posts · 29 votes3y
Quote from @Eliott Elias:
You pay the earnest money deposit initially. And you also require an earnest money deposit from your cash buyer. Your deposit gets refunded to you. The cash buyers deposit is applied towards the purchase price. And is nonrefundable.
So for the term "have my EMD refunded to me once the deal closes" do I put that into the P&S agreement or assignment contract?
Anyone who has some insight can respond too, thank you.
- Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes3y
Quote from @Peyton LaBarbera:
Quote from @Eliott Elias:
You pay the earnest money deposit initially. And you also require an earnest money deposit from your cash buyer. Your deposit gets refunded to you. The cash buyers deposit is applied towards the purchase price. And is nonrefundable.
So for the term "have my EMD refunded to me once the deal closes" do I put that into the P&S agreement or assignment contract?
Anyone who has some insight can respond too, thank you.
You can simply email the closing company since your buyers EMD is there and get it anytime. You can also wait until it closes, then the closing team can add your original EMD to the assignment fee all in one check/wire.
If you are double closing, then your EMD will be independent of your buyers and must remain with the closing team until closing. - Investor · CT · Member since 2023 · 141 posts · 29 votes3y
@Jesse LeBlanc Ok I see that makes sense, one last question is do I pay taxes on my EMD if it comes back in one check from the closing company or is there a way to break it down on paper when filing for taxes since it is not income?
- Investor · CT · Member since 2023 · 141 posts · 29 votes3y
And just to clarify when I disclose the EMD with the buyer is that in the P and S contract or assignment contract?
And do I have 2 P and S contracts one for the seller when I get the deal and one for the buyer when I close or just one p and s contract and the assignment contract transfers that p and s contract to the new buyer?
Thank you to all for being so helpful, from now on I will come here for all my questions about wholesaling sometimes google just doesn't do the trick
- Investor · Member since 2022 · 27 posts · 13 votes3y
Hi there
I am an experienced investor where I JV with Wholesalers across the US providing funds for EMD and double closing. Happy to connect to see if I can help. I have funds and resources to help close deals. The long and short is that if you're a wholesaler and need help with your earnest money deposit, I can help you! I can provide short term funding solution for your EMD! The process is simple, we work directly with you, and your title company, send the EMD to the title company. When you find a buyer, we get our loan back plus our fee at closing. We can also provide double close funding up to 500k.
Happy to connect to discuss further if you have any questions. - Investor · Member since 2022 · 27 posts · 13 votes3y
Quote from @Peyton LaBarbera:
And just to clarify when I disclose the EMD with the buyer is that in the P and S contract or assignment contract?
And do I have 2 P and S contracts one for the seller when I get the deal and one for the buyer when I close or just one p and s contract and the assignment contract transfers that p and s contract to the new buyer?
Thank you to all for being so helpful, from now on I will come here for all my questions about wholesaling sometimes google just doesn't do the trick
In some cases it might make better sense to do a double close. Where you buy the house with cash (complete A-B contract) then turn around that day and sell to end Buyer (complete B-C contract). Example you get a house under contract for 100k, you buy house for 100k then you sell your newly acquired house you now legally own for 150k. You then make 50k on the spread. I work with wholesalers who are not using this to help get houses under contract. I can provide funding for double closes up to 500k and will work with you and title directly to ensure completion of contracts
- Investor · CT · Member since 2023 · 141 posts · 29 votes3y
Quote from @Michael Germano:
Quote from @Peyton LaBarbera:
And just to clarify when I disclose the EMD with the buyer is that in the P and S contract or assignment contract?
And do I have 2 P and S contracts one for the seller when I get the deal and one for the buyer when I close or just one p and s contract and the assignment contract transfers that p and s contract to the new buyer?
Thank you to all for being so helpful, from now on I will come here for all my questions about wholesaling sometimes google just doesn't do the trick
In some cases it might make better sense to do a double close. Where you buy the house with cash (complete A-B contract) then turn around that day and sell to end Buyer (complete B-C contract). Example you get a house under contract for 100k, you buy house for 100k then you sell your newly acquired house you now legally own for 150k. You then make 50k on the spread. I work with wholesalers who are not using this to help get houses under contract. I can provide funding for double closes up to 500k and will work with you and title directly to ensure completion of contracts
Unfortunately I am not interested in double closing at the moment but thank you for taking the time to comment.
If you have any information about any of the questions I had that would be great, thank you.
- Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes3y
Quote from @Peyton LaBarbera:
@Jesse LeBlanc Ok I see that makes sense, one last question is do I pay taxes on my EMD if it comes back in one check from the closing company or is there a way to break it down on paper when filing for taxes since it is not income?
No, it was not considered Ordinary Income. This is merely a wash. $1 out and $1 back in, $0 net profit, no ordinary income to report, no taxes paid. IF it were EMD you kept from a buyer that didn't perform, that would be income and taxable.
- Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes3y
Quote from @Peyton LaBarbera:
And just to clarify when I disclose the EMD with the buyer is that in the P and S contract or assignment contract?
And do I have 2 P and S contracts one for the seller when I get the deal and one for the buyer when I close or just one p and s contract and the assignment contract transfers that p and s contract to the new buyer?
Thank you to all for being so helpful, from now on I will come here for all my questions about wholesaling sometimes google just doesn't do the trick
ONLY if you're double closing will you need 2 separate "purchase & sale" contracts. When you're assigning your contract, you will have just that, 1 original purchase contract and 1 assignment of contract. so 2 contracts but 2 different documents. The first is with you and the seller agreeing to buy their house. The 2nd is with your buyer, assigning your original contract to them for a specific fee, they then step in as the buyer.
- 3yTom GimerBusiness MemberDMV · Member since 2017 · 3k+ posts · 3k+ votes
There are 2 different contracts involved... the A-->B original purchase agreement and the B-->C assignment. If both of those agreements require earnest money then those obligations are distinct.
Absent a full release of B by A, any title company releasing B's EMD when C's EMD is made doesn't understand basic contract law.
In the standard assignment scenario (especially with less than perfectly-drafted agreements) it is entirely possible for C to justifiably fail to close and for B to default. And when that happens if there is no deposit for A to forfeit that is a problem.
Gimer Law516 Reviews - Member since 2023 · 17 posts · 9 votes3y
Quote from @Peyton LaBarbera:
I am a bit confused on this topic so lets just get started. First off I was wondering if as the wholesaler do I have to pay a earnest money deposit to the seller or does the cash buyer do that since I am assigning the contract over to them. If I have to put down an earnest money deposit made out to the seller do I get that back when the deal closes and when the cash buyer buys the property or is that put towards fees/taxes I will have to pay? Also as the wholesaler should I ask for earnest money from the cash buyer or not, thank you.
- Member since 2023 · 17 posts · 9 votes3y
Hello Peyton,
Great job taking action.
Yes you pay Earnest money, however, it doesn't have to come out of your pocket. There are people that will pay it for you in exchange for part of your assignment fee. Yes I am one of those such people.
The contract that I use protects the EMD if the deal does not close.
And Yes whatever, you paid in EMD, it is a good practice to ask for the Cash Buyer to put up double your EMD amount. So if you put up $1000.00 ask for at least $2000.00.
If you have any other questions.
I'm happy to help
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