Is $2,000 Non-Refundable Earnest Money Deposit (EMD) Normal?

Question

I've got a seller who is asking for $2,000 Non-refundable EMD. I'm new at the buying game and would like to know if this is standard. When I do my due diligence and find out that the property is not a good value for me then wouldn't I be out $2K?

John Thedford · Answer

To protect yourself from these fringe operators here is what I suggest:
1. Always require WRITTEN comps that can be substantiated
2. Always require WRITTEN bids from LICENSED contractors
3, Always require WRITTEN comps to substantiate ARV
4. NEVER pay a non-refundable fee
5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.

Unlicensed brokers generally have no insurance. From personal experience most just pull their ARVout of thin air. Lets see: claim it costs x and it will sell for y. If someone uses an agent, an agent won't provide or should NOT provide the BS an unlicensed broker does. They should not or do not provide rehab figures (to protect themselves). They should tell a prospective buyer to get their own bids. They can provide comps in some situations on an updated unit vs an original unit. Agents have something to lose, can be fined, and have their license suspended or revoked. Unlicensed brokers, acting as fringe operators skirting the laws have nothing to lose. They are acting as an agent without the laws, ethics requirements, education, and insurance that are vital IMO.

You might want to ask this person if THEY give the seller a non-refundable deposit. Bet not.

Andy Rumple · Answer

David the $2K is negotiable or should be. Oncethe person knows you to be reliable he willprobably reduce or waive it.

Justin B. · Answer

$2k is very common for SFR's.  If you have contingencies for inspection or financing, etc, and you back out of the contract due to any of those clauses, it should be refundable.  The non-refundable part is if you back out for other reasons.  If he is saying it's non-refundable no matter what, then that's not normal (no one would agree to that).  You may even be protected by local laws.  Bottom line, if the contract says the purchase is contingent on something that doesn't come through, you should get your money back.  Also, make sure that deposit is held in some kind of escrow to further protect yourself.

Russell Brazil · Answer

Yes that is pretty typical. You should walk a property before placing it under contract. If the property is from a wholesaler, the condition will likely be bad, so nothing more than a walk through is really needed for someone to place it under contract.

Jose Flores · Answer

Hey @David Gunn as a wholesaler I always ask for a 2k non refundable deposit.  However, if the title search comes back with 25k lien on the property I would never expect the end buyer to still by.  This just applies in the event the end buyer find other deal and cancels on moving forward with me and just wasted 3 weeks of marketing efforts on my part.  Hope this makes sense.

Rosston Smith · Answer

No.Ive offered $500 for 140k properties.So unless your property is 4x that amount, I wouldn't consider it.

Matt H. · Answer

I only make a non refundable deposit if I know the property and I know the price/deal is what I want. Also my financing or cash is lined up. Basically you gotta be sure.

David Gunn · Answer

Yes, he is a wholesaler. It's always $2k no matter what property he sends me. He writes it on the bottom of every email. Good point about the clauses. I'll be sure we ad appropriate clauses to our offer.

Thanks.

Percy N. · Answer

@David Gunn, is the seller a wholesaler? They try to get as high of a non-refundable deposit as possible.

Most earnest money is refundable subject to the clauses (such as home inspection, financing, etc).

I would push for a refundable deposit, but I understand where the seller is coming from, especially if he thinks you are going to lock up a good property. I would not do more than $100-$500 if it is non-refundable.

Is $2,000 Non-Refundable Earnest Money Deposit (EMD) Normal?

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