a dollar to anyone with half a conscience about real estate will just laugh at that.
I had one guy send me a contract with a 15 dollar EM.. so U can imagine my response.. he had some BS excuse and I said well if you have all your money tied up and can only handle 15 bucks . then I am not interested.
if your going to do this you have to be professional.. and EM is part of it.. not to mention if you are not closing and just trying to assign that's illegal in FLA.. so you have that double whammy
The sellers want to know that you're serious.
One of the ways that they do this is by having you put up earnest money.
$1,000 earnest money is normal, just make sure that it is refundable.
The owner probably wants the earnest money as a show of good faith that you are not going to back out of the deal except by any means allowed in the contract. I am not a wholesaler nor have I ever done any wholesale deals on either side of the table, but I have purchased off market. On 2 of the 3 off market purchases, I have put earnest money down and had the closing attorney held the money until closing.
The dollar amount seems pretty reasonable.
Since Wholesalers are only selling the contract and not the property I honestly thought it was illegal to ask for earnest money. I am new to Wholesale so where do you find out if EM is legal in your state as a Wholesaler
@Calus Glispie it seems weird that he didn't ask for EM in the beginning.
Yet another "investor" who is willing to "buy" a property but doesnt have $1000 to their name. But still wants to tie up a seller at a low price. This whole business model is really offensive to me. If you can close and will close then sure go ahead buy it low and sell it slightly higher. But if you have no means to close then get a RE license and be an agent.
You have to understand that for a seller someone walking away from a deal is a big setback. They have to start over with advertising, showing, etc. I would absolutely reject a buyer offering $1 in EM. The $1000 suggested by the seller is very reasonable.
@Calus Glispie you HAD been able to get away with $1 EMD back in 2010 - 2014 when wholesaling was taking off. Now in today's market you have to actually come up with cash. So yes, it's a myth. Better off not offering any earnest money at all.
@Yolanda Eiland Whoever you told you that, it’s really laughable. When you get a Property under contract, well the contract says that you are Actually buying the property.....as far as the seller knows.
There is no requirement. But last few years the EMD is 5 to 10% of purchase price.
“....seller doesn’t like the $1 earnest money”. I find this just absolutely shocking! Doesn’t the seller realize that you’re a man of your word, and if you don’t buy the house as per your contract, after stringing him along, he gets to keep the whole dollar?
@Wayne Brooks ok, I didn't know that. Thanks
I’ve always heard you can close deals with even NO earnest money at all but is this true or just a wholesaling myth?
Absolutely it is a myth. It is technically physically and legally possible but it is not the norm. Yes I have given as little as a $10 EMD, but that was to a buyer who wanted nothing for his properties. (he owed more than they were worth) Any buyer that expects some real price for his or her property is going to realize that you are not willing to your money where your mouth is.
Another aspect is ethics, if you are not confident enough in the deal to put $1000 at risk, then maybe you shouldn't be doing the deal. That is because if you walk you may be doing serious harm to the seller. You can also be running a legal risk for not negotiating in good faith. All the Gurus want to make it sound easy, no risk and can do with no money. That is because it makes it easier to sell their programs.
$1000 to $2500 is normal. I would laugh at you if you offered a dollar.
What value does your 1 dollar add to the seller....
Hint, it's somewhere between none and nothing
Originally posted by @Calus Glispie :
So one of my deals I’m working on took me a while to get in contact with the owner but after following up we spoke and agreed on a price. i emailed him the contract and he said he didn’t like the dollar amount for the earnest money (which i had at $1 dollar) but instead he wanted $1,000 to lock the deal. Now I’ve done my research on earnest money but as for wholesaling is this out of the norm? Bc I’ve always heard you can close deals with even NO earnest money at all but is this true or just a wholesaling myth?
I’d absolutely 100% NEVER let someone put my property under contract without EM. Someone looking to do $100 (or $1, seriously) is 99% going to be a waste of time.
If you think you can flip the contract, cool. Put up some EM. If you don’t think you can then I don’t want to waste the time.
I normally require $5k-10k MINIMUM as NON REFUNDABLE em. And when I’m bidding on a place, since I know I’m not hugest in price, I’ll often be $100k hard em.
What you should do if you’re trying to “trick” someone into thinking you’re serious is do $5k but simply have 30 days before it’s hard. That’s way it looks like your committed but you have outs.
When people ask for a period of time to check for dealbreakers before EM is non refundable I tell them to do that’s before going under contract.
Also I assume this is off market and YOU came to HIM. Which means he’s likely someone who “would” sell vs “needs” to sell. Thus he’s more in the drivers seat re non price terms
I do wholesale properties in Arizona and generally use at least $100 EM. Most of the time these are desparate sellers and they are not really looking at my EM... HOWEVER... if they ask for more I can add another zero.
The principle behind EM I believe is to show your "earnestness" about purchasing. The whole idea is to create pain for you if you don't proceed. That's why $1 isn't in the spirit of what EM is for. As Margaret says above with distressed sellers this is not an issue but even then their attorneys should be concerned.
I generally require at least 1% of the purchase price, any less and I feel it shows they lack confidence in being able to close. In a seller's market, I also remove the financing contingency and make the money go hard after the inspection period.
As always, seek professional advice.