First deal, Down payments?

Question

Hey BiggerPockets, I have been trying to get my first deal since October now. I have recently been trying to implement a more virtual model and have been spending a majority of my time doing that lately. I feel like I keep running into the same problem. Seller keeps wanting a down payment before they sign the purchase and sale agreement. Is anyone else running into this? And how are y’all managing to navigate around this? Thanks everyone!

Elise Marquette · Answer

@Kara Fatty yes, the earnest money deposit shows you’re interested in the property. Typically here in Tampa Bay Area, it’s 1% of the sale price

Will Barnard · Answer

Actually, the CA standard for EMD is 3% of offer amount. If you think $10 or $50 or even $100 is a large enough EMD for sellers, then you have been listening to too many gurus. An EMD is to show and prove to a seller that the buyer is serious, a $10 EMD tells them you are a joke.

Don Konipol · Answer

@Kara Fatty

I always wonder how many good deals are missed by this guru nonsense of submitting an offer with $100 earnest money.  The best way to get a low offer considered serious is putting up a good deal of earnest money.

The inexperienced and desperate willing to take an offer with $50 earnest money seriously are fewer and fewer all the time.   Still possible, and I know everyone will say how successful they’ve been doing it, but how many good deals were MISSED?

Charles Carillo · Answer

@Kara Fatty

I think every seller is going to want a EMD before they sign the agreement. You are going to be wasting a lot of time and money if you do not want to provide the seller with a deposit.

Barry Pekin · Answer

@Kara Fatty,

I hear of people paying $10 also, but I go for $100 as a standard.  Also, you absolutely MUST be working through a title company.  They hold the EMD in escrow until closing.

David Kelly · Answer

As a lender, I see most are at $1000.

Tom S. · Answer

@Kara Fatty  You can certainly start with $100 but be prepared for $1,000 which is fairly standard.  As others mentioned, depends on the market.  I've bought property in CA and $10k - $20k EMD was the standard for the area (SoCal on the coast).

Oscar Cardenas · Answer

Based on what you are saying about a virtual model I am assuming you are trying to wholesale? That depends on your negotiation skills for off market deals, EMD can be anything. For MLS deals you have to ask an agent of the area, my area tends to be $1k EMD minimum.

If you come across low EMD, be happy. Also, be careful with actually knowing the rules since you didnt know about EMD. Been hearing about uneducated wholesalers starting to get sued. Wholesalers work in the gray areas of legality so that means you should know what your limits are before wasting a distressed sellers time or an investors non refundable EMD as has been more common now.

Anthony B. · Answer

$10 ;)

EMD can be whatever you and the seller agree upon (start low).

You'll see a lot of Real Estate agents quoting percentages, and that's because it's "tradition" in their business.

But we're not Real Estate agents; we're investors who get in low, and sell high.

Ask the seller how much of an EMD he's interested in, and weigh it against your potential profit.

Tom Parris · Answer

Ask your agent what is common in your area and follow that advice. It will also depend on what's in your area's contract says. In my market, the contract states that your EMD has to be received within 3 days of going under contract. It's also 1% of the sales price.

I'm also not surprised. In highly competitive markets, behavior like this can happen. Put whatever you can down, but make sure you have appropriate contingencies to get it back if you decide not to go through with the purchase early on in the contract.

First deal, Down payments?

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