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After the bank approves it is the most common but some sellers will require that it get deposited at the time of agreement and is non-refundable for a certain number of days to keep buyers from walking too fast.
When making an offer on a short sale, is the earnest money typically deposited when the sellers sign the contract or is it after the bank approves it?
Yes . It depends on the specific contract requirements. Our standard contract short sale addendum only requires a deposit when the bank approves. However, some sellers/agents modify it to require at least a minimum deposit amount up front, non-refundable for some period of time (60-90 days) to lock the buyer in and allow the seller time to negotiate with their bank.
Be certain to read the sales contract carefully to see how your earnest money will be treated, what entity will hold it, refundability terms, etc... . You have the right as the buyer to make the earnest money terms as part of your offer conditions. The seller may or may not be willing/able to accomodate that request.
My real estate commission has said that they frown on the practice of holding the check until bank approval comes in. There are several reasons for this.
1. It can take months to get approval, and sometimes the check is stale by that time.
2. The buyers may forget that that money will be debited eventually, and end up with a bounced check
3. Sometimes after there is bank approval, the closing goes very quickly, and there isn't time for the EM check to process (so you know if it is going to bounce) by closing. So you have to deal with converting it to certified funds before depositing it.
All of that said, I would say that it is still the most common practice for agents to word their contracts that way in my area. Default wording on the contract in my area is for it to be deposited upon buyer and seller approval, without waiting for the bank to approve.
My real estate commission has said that they frown on the practice of holding the check until bank approval comes in. There are several reasons for this.
1. It can take months to get approval, and sometimes the check is stale by that time.
2. The buyers may forget that that money will be debited eventually, and end up with a bounced check
3. Sometimes after there is bank approval, the closing goes very quickly, and there isn't time for the EM check to process (so you know if it is going to bounce) by closing. So you have to deal with converting it to certified funds before depositing it.
All of that said, I would say that it is still the most common practice for agents to word their contracts that way in my area. Default wording on the contract in my area is for it to be deposited upon buyer and seller approval, without waiting for the bank to approve.
Who holds the check? I just write in that it will be written and deposited upon approval or you can always use a promissory note.
On our short sale they requested $2000 EM with offer, but when our realtor wrote up the contract he stated we would give the EM when the bank actually approves our offer. They accepted.
Who holds the check? I just write in that it will be written and deposited upon approval or you can always use a promissory note.
Our auditors require that we obtain a check when the contract is written (unless it is a weird deal with no EM at all, but I have only had 2 of those in 10 years). In fact, at our last audit, they said they want us to start writing the check number on the trust card right from the beginning, before the deal is even accepted. So we have to just hang on to the physical check for months. Sort of a pain in the rear.
I have never had a promissory note in the 10 years I have worked here, they are extremely uncommon here.
Edited to say:
In fact, until just a few years ago, the title of our contracts was something like "Purchase and Sale Agreement and Receipt of Earnest Money". The fact that the contract existed was receipt that EM had been paid.
Kind of interesting to see what happens elsewhere. Here, we almost always get EM upon execution and our laws require it to go into an escrow account within 3 days....no holding a check. The short sale approval is a contingency and typically all of the date-sensitive activities are timed from the SS lender approval, not the effective date. The thought here has always been that the buyer should have some skin in the game from the beginning to keep them from walking during the initial lender approval period. In fact, lately, I've seen some push back against small deposits (i.e. $500-1000) with sellers looking for more substantial amounts. I just did one where they wanted $10K or the attorney handling the short sale wouldn't take it! Our inventory is down and most short sales are going thru. Taking a property off the market for 3-6 months just to have the buyer walk just before the approval comes thru has been a problem and I think agents are advising sellers that they need to get a hard commitment from buyers (by virtue of a larger deposit).
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. It depends on the specific contract requirements. Our standard contract short sale addendum only requires a deposit when the bank approves. However, some sellers/agents modify it to require at least a minimum deposit amount up front, non-refundable for some period of time (60-90 days) to lock the buyer in and allow the seller time to negotiate with their bank.
