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Old 03-24-2009, 10:47 PM
 
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what is ernest money worth on a short sale? I heard that you can still be outbid?
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Old 03-25-2009, 12:19 AM
 
Location: Not where you ever lived
11,544 posts, read 25,095,804 times
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If you can afford to light a match and watch 12K burn, then give the buyer the money they DEMAND. If you cannot, do not. Find another house. You are not wed to the realtor, either. All Earnest money does is indicate you like the house well enough to make an offer on it. The realtor is duty bound to present your offer regardless of the amount of Earnest money you included with offer. .
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Old 03-27-2009, 02:27 PM
 
Location: Denver
1,082 posts, read 4,215,059 times
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I agree. I saw an article draft, supposedly soon to appear iin the Colorado Lawyer, about how even lawyers these days need to be careful because in issuing legal opinions about contract interpretations they have to consider "customary practice" and what the heck is customary practice in these days of real estate change? Usually the assumptions are interpreted AGAINST the person drafting it, but I don't even know if that holds up anymore, plus who wants to argue against a written contract? Everything has gotten so darned complicated, it reminds me of that Kinks song, "A complicated life".
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Old 04-30-2009, 08:03 PM
 
1,738 posts, read 3,885,040 times
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bumping the thread.

First home buyer here and I'm already disliking the home purchasing process. Too many hands sticking out in "transaction costs" and the like. Seems inefficient to me. At any rate, came up to this topic of earnest money and I just must be dense to the concept of it so I would like some of yall's feedback on the matter before I start making offers on houses and presumably hurting seller's egos.

I'm prequalified and plan on putting around 10% down payment of the purchase price, but have no intention of tying up any kind cash in an escrow account to give a seller a warm fuzzy, particularly in a buyer's market. My prequalification letter should be enough to show the seller my ability to buy. My written offer should be enough to show my intent to buy. Standard contract will spell out an arrangement to have inspection-discovered deficiencies be pre-paid by the seller or lowered in purchase price. Simple enough. So why should I bother with an earnest deposit? what am i missing?

I live in louisiana. My understanding is that there is no legal requirement to put down "earnest money" when making an offer. Is this correct?

I guess what I'm trying to say is I'm not trying to offend anyone, but I don't see the point of tying up my cash in an earnest deposit. They can keep the listing on the market till closing for all i care. Either the seller will like my offer, or counter my offer, or reject it. I'm not trying to marry the seller, i'm just trying to buy a house. why would a seller scoff before looking at my offer because i didn't give him free money to try and litigate with?(mind you he's still stuck with the mortgage payment, I'm still happily renting). I also heavily doubt most sellers here will hard-stop not look at my offer just because i didn't put my whole life savings up front, that's just a bluff. My offer is not an earnest deposit, my offer is the offer (seems simple to me). It's clear I dislike the process lol. This whole "it's customary to put x% of the purchase..." may be customary, but I find it nonsensical, I guess I'll put this theory to the test in a couple weeks. in the meantime discuss....
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Old 04-30-2009, 09:03 PM
 
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I will try to stick to why the earnest money makes sense for BOTH buyers and sellers.

Real estate selection, negotiation, and closing are, inevitably time consuming and time sensitive undertakings. In both rising and falling markets BOTH sellers and buyers have A LOT at stake. If either "backs away" the other is worse than had they never sat down, because TIME IS MONEY.

To help keep either party from not respecting the seriousness of the situation the practice of involving disinterested third parties has become customary. The broad term for such a third party "holding" is escrow. Escrow – Definition and Description

If the contract is structured properly, and the escrow is administrated faithfully, the end result is both buyer and seller are encouraged to quickly consummate the deal. The threat to the potential buyer losing any of the escrow is made more real by using an amounts of money that both buyer and seller is appropriate. Very small amounts would not help to keep the buyer from looking at other alternatives to buy. Similarly a seller would aggressively seek out other buyers until the last possible moment if they feared the buyer was not committed to just one property.

There is nothing magic about $10,000.00 -- I have participated in deals, both directly and as agent with literally only $500 dollars, as well as amounts as large as $50,000.00 (which seemed silly to me, but the seller wanted to do it and it did reinforce that my buyer did in fact have LOTS of cash, which was not to the sellers advantage, as the house was immaculate and the buyers had no reason not to like it ...). But I always recommend SOMETHING, as the situation of having nothing in the game is not good...

I do not leave "deposits" at car dealers, except when they used to have make it easier to special order cars and even then I had a preference to simply write them a check that they would not cash unless I left them with some freak car that no one would buy (and I never did that...).

If seller 'accepts' your offer with nothing from you, in the view of the law you do not truly have a contract. The 'consideration' that the seller is giving up is considerable -- the time off the market. Yet you as the buyer have given up nothing. You can continue to shop and make offers on properties willy nilly getting the whole state to believe you will buy THIER house, meanwhile you have nothing to compel you to show up at closing and actually have the financing in place to transfer title.

And if you were a seller and a buyer made YOU an offer with nothing to compensate, would you be upset when it came time to close and the buyer did not even bother to call to say "I found a better deal"? Would you set a closing with a roomful of potential buyers and hope just one shows up? Would you have them bring bars of gold and sacks of silver to the title company to settle up???

I hope you can see that this is not just a foolish custom, but a system that works well because of the rule of law, the trust of multiple parties, and the practice of our courts.

The escrow money is literally and legally UNAVAILABLE to the buyer until and unless everything CLOSES. He can't use that money to litigate with or anything else. The money "goes to sleep" and lets both parties sleep well with the knowledge that there is strong incentive to close.

Last edited by chet everett; 04-30-2009 at 09:14 PM..
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Old 06-17-2010, 06:16 PM
 
27,535 posts, read 44,999,258 times
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yeah--
1-2% of purchase price unless there might be other offers near same price/conditions (which could be possibility)
remember that if anything goes wrong and YOU want to pull out without a stated reason--you kiss that money goodbye...
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Old 06-17-2010, 07:23 PM
 
Location: Boise, ID
8,011 posts, read 22,532,873 times
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Quote:
Originally Posted by DMenscha View Post
Again, most brokerage firms don't have trust accounts anymore and can't even accept an earnest money check made out to the real estate firm.
I know this is an old thread, but since it already got bumped, I thought I would mention that almost ALL brokerages have trust accounts in my area, and the EM is only rarely held by a title company.
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Old 06-17-2010, 07:47 PM
 
61 posts, read 206,437 times
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I did once. The listing agent cashed the check very quickly. But when I did not accept his counter-offer, it took forever to get the $10k back. When I read message board like this, I wonder where these wonderful agents come from. So far my house hunting experience has been a real eye opener. Sometimes, the buyer's agent has to be reminded whose side the agent is on. Some of these listing agents (oh mine) gave out so much half-truth and sometimes straight lies that you don’t know who and what to believe. The rules about EMD only work when you are dealing with professional agents (or agents who play by the rules). Sometimes, you need luck to find them…They do exist (as evident on this board) and I did run into a couple, but not often enough...
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Old 06-18-2010, 12:41 PM
 
68 posts, read 426,436 times
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my earnest money was 3% so $14700 to Escrow for deposit.
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Old 06-18-2010, 02:34 PM
 
589 posts, read 832,173 times
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I put down a large EM (~3.5%) only because it was a short sale at a great price and I was competing with other buyers. I did not want to increase my offer so the strategy was to offer more EM than the others to give the bank confidence in going with us. Also, I was very confident that we wanted this house, we were not going to back out for any reason, which is the only way you lose the earnest money. It worked (well something worked, not sure how much our EM influenced the situation) and we got the house.

On our previous home purchase, which was not a short sale, I think I only put less than .25% in EM.
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