Why I never put earnest money down

Question

I never put earnest money down. Not $500, not $1,000, not on any deal.

That is not me being difficult. It is math and volume. I am looking at deals every week in Memphis, mostly single-family under $100K that I plan to BRRRR. If I tied up cash on every contract that might close, I would have thousands sitting dead while title, walkthroughs, and seller situations sort themselves out. A lot of those deals never close — and it is rarely because I walked.

My protection is not earnest money. My protection is speed and certainty on the ones that are real. I underwrite fast, I give a clean price, I can close, and I do not retrade on small stuff. Wholesalers and sellers who work with me more than once learn that. The first deal is where I have to explain it the most.

I also read every contract before I sign and strike the earnest money line if it is in there. If a seller absolutely will not move without it, I listen — but in 236 doors, that has almost never been the thing that made a good deal close. What closes deals is a real buyer who answers the phone and shows up at closing.

Newer investors: do not copy this blind if your market expects it and you have no track record yet. Earn your reputation first, then your terms get better.

Curious how others handle this — do you put earnest money down on off-market single-family deals, or do you hold the same line?

Nicholas L. · Answer

@James Jones

not sure if this will work elsewhere... i buy both on and off market and always put EMD down. not sure how i wouldn't...

James Jones · Answer

Good question, Jamie — trust does not come from the deposit, it comes from what you do after you sign. I underwrite fast and come back with one clean price, and I do not retrade over small stuff once we agree. If I say I will close, I answer the phone, I show up, and I close. The wholesalers and sellers I work with in Memphis have seen that pattern repeat, so the earnest money conversation gets shorter every deal. The first deal is the hardest one to explain — after that, the track record talks. At 236 properties, mostly under $100K, my reputation is the deposit.

Jamie Parker · Answer

Ive made that point to sellers and realtors before. if you are making a lot of offers, Putting up 500-2500$ adds up. Now one once you are certain, then it makes sense. But ultimately EMD doesn't guarantee that someone will close either.

As A wholesaler, getting an EMD on a deal from a buyer doesnt guarantee a close. Most investors write an exit clause into agreements.

My question, How do you gain trust when not providing a EMD?

John Leland · Answer

We follow the same pattern. I believe earnest money is for the situations where you will buy only one property, live in the property, it's a hot market and a great deal. On investment properties our speed and ability to close removes the need for earnest money,

Why I never put earnest money down

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