Pearland, TX · Member since 2015 · 3 posts · 0 votes
Hello all, I am a wholesaler and I have come to an agreement with a motivated seller and this will be the first house that I have had under contract. However, the seller has just informed me that they want $1,000 earnest money. How can I avoid this? Especially with me having serious buyers and feel as if I could move the property fast.
Roselle, IL · Member since 2015 · 165 posts · 143 votes
10y
If you can move the property fast then the earnest money shouldn't be a problem. Many sellers will want EM as it shows them that your financially invested in the deal and that if you simply waste their time they will be somewhat compensated.
If I were a seller I would NEVER not take EM.
However here's how you as the wholesaler can be savvy about it:
1. Have an attorney add a section in the contract (if there isn't one already) that states that EM isn't due until 5 days (or longer if seller accepts) after contract acceptance. During these 5 days see if your buyers really are serious before submitting the funds.
2. Do a 10 day attorney review period. During this period your attorney can cancel the contract for whatever reason as long as it is NOT based on purchase price.
3. Ask the seller if they are open to EM of $500 instead of $1,000. This can save you $500.
4. Add contingencies to the contract to protect you. You can add, for the most part, whatever contingency you want as long as the seller/sellers attorney approves it. Many people add a "contingent upon my partner approving the deal". If your partner does not approve the deal then the contract gets canceled and you get your EM back.
I am not an attorney (advise you talk with one) and this is what can be done in Illinois, Texas might be slightly different.
Always be considerate of seller's time. Three months of being under contract and having the deal fall apart due to you not producing any qualified buyers will get under any seller's skin.
Investor · Houston, TX · Member since 2012 · 354 posts · 186 votes
10y
If you have serious buyers and can move the property fast, then why not pony up the earnest money. They just want reassurance they are dealing with someone that can close. Too many wholesalers back out of deal when they can't find buyers because their "deals" are not real deals. If this is a good deal. Then you will have buyers and nothing to lose putting down the earnest money.
Roselle, IL · Member since 2015 · 165 posts · 143 votes
10y
If you can move the property fast then the earnest money shouldn't be a problem. Many sellers will want EM as it shows them that your financially invested in the deal and that if you simply waste their time they will be somewhat compensated.
If I were a seller I would NEVER not take EM.
However here's how you as the wholesaler can be savvy about it:
1. Have an attorney add a section in the contract (if there isn't one already) that states that EM isn't due until 5 days (or longer if seller accepts) after contract acceptance. During these 5 days see if your buyers really are serious before submitting the funds.
2. Do a 10 day attorney review period. During this period your attorney can cancel the contract for whatever reason as long as it is NOT based on purchase price.
3. Ask the seller if they are open to EM of $500 instead of $1,000. This can save you $500.
4. Add contingencies to the contract to protect you. You can add, for the most part, whatever contingency you want as long as the seller/sellers attorney approves it. Many people add a "contingent upon my partner approving the deal". If your partner does not approve the deal then the contract gets canceled and you get your EM back.
I am not an attorney (advise you talk with one) and this is what can be done in Illinois, Texas might be slightly different.
Always be considerate of seller's time. Three months of being under contract and having the deal fall apart due to you not producing any qualified buyers will get under any seller's skin.
Investor · Avilla, IN · Member since 2013 · 796 posts · 769 votes
10y
I'll add to what Marcin said and say that you should never give the EM directly to the seller. Have it held in escrow by the title company or an attorney.
Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
10y
I get hundreds of emails every week from wholesalers, and every single one of them demands a "non-refundable $2500 deposit to lock up the deal." Why would you expect a deposit from your buyers but not expect the seller to want the same thing?
Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
10y
A deposit is normal, but remember it can and should be structured like a deal on the MLS with an agent.
You have time to place that EMD in escrow once the contracts are signed. Then you boogie to find a buyer and its their EMD that goes into escrow to secure the deal.
I do this day in, day out. Yes sellers deserve a deposit and decision in a timely manner. No they don't get that in cash in their hands, that's loco.
Flipper/Rehabber · Madison, WI · Member since 2016 · 29 posts · 27 votes
10y
Some sellers want EMD some don't even know what an EMD is. If you're wholesaling after your first deal start building a cash reserve for things like closing costs amd deposits.
Don't get discouraged it won't happen all the time, especially if the seller is truly motivated.
Escrow Officer · Temecula, Ca. · Member since 2016 · 418 posts · 152 votes
10y
I have a lot of investors/wholesalers who negotiate $100-$500 EMDs and they put them in escrow to keep the seller happy but the end buyer add this to their costs and reimburses the wholesaler for the EMD at closing. So, the wholesaler is only out the EMD costs during the escrow period. Maybe you can work that out, too?
Real Estate Broker · Orange, CT · Member since 2013 · 951 posts · 218 votes
10y
As someone already stated. Do not give it directly to the seller. It needs to be held in a Trustee account by either a Title Company, Closing Attorney, or Real Estate Broker.
But you should definitely put up the deposit. When you get the wholesale buyer, you should require they put up an equal or higher deposit.
Specialist · Tacoma, WA · Member since 2016 · 73 posts · 30 votes
7y
my problem is I have not found anyone who will look at the deal until i have it under contract so I dont know how it will go and I am speculating as to what I think it will go for.
Specialist · Tacoma, WA · Member since 2016 · 73 posts · 30 votes
7y
You’re right of course. Just feeling sorry for myself lol I will deposit the EM in escrow and if they seller doesn’t agree to that then I will skip the deal although it sounds pretty good to me.
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
7y
@Doug Orchard In any standard contract, you generally have 5-7 days for inspections / due diligence. So as long as you notify your seller within that time period that you're not interested, you'll get your EM back. You won't lose it.
The earnest money gets paid to the title company. You'll get the earnest money back at closing. If you need an earnest money loan, Ping me. I can give you a list of earnest money lenders. Most realtors I deal with recommend 1% earnest money to their clients/sellers. The earnest money never goes to the actual seller. If they are asking the money get sent to them, Its a scam
The earnest money gets paid to the title company. You'll get the earnest money back at closing. If you need an earnest money loan, Ping me. I can give you a list of earnest money lenders. Most realtors I deal with recommend 1% earnest money to their clients/sellers. The earnest money never goes to the actual seller. If they are asking the money get sent to them, Its a scam
I know people that are doing $100 for earnest money with off market properties :) Don't sweat it! You'll get the money back under most circumstances.