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We put in a contract on a home last night, and when our agent called the owner to let him know we were faxing it, he informed our agent that he expected at least $3k as earnest money ($1k is typical for the area we're shopping in) and that he has his own form that he always counters with, that reduces the inspection period to 7 days and that the earnest money is non-refundable after the inspection period, for any reason.
As a little background info, this guy, who is an owner/agent, acquired this home at a trust sale last week, painted the interior, cleaned up the baseboards and did some minor drywall repair, then listed the home to turn a small (quick) profit.
We are not concerned about the shorter inspection period, since we are from out of town and want to be present for the inspection (we are planning on scheduling it for Thursdsay if we accept his "counter"). We are also pre-approved for our financing and have great credit and I have no concerns about our financing falling through.
Our agent said that she would at least try to not let our earnest money "go hard" until after appraisal. I'm just wondering if this is just an investor trying to protect himself from wishy-washy buyers with poor credit, or if there is something more questionable going on here.
Heck, just because he has a form he includes doesn't mean you have to agree to it. This is one area I'd play hardball with him on. If he wants to sell it he'll forget the form in the end. Sounds like something an attorney drew up. They have the amazing ability to complicate a transaction like that.
Yeah, our agent wants to play hardball and at least save our earnest money from being kept unfairly.
He does have the property priced very well, however. We asked to meet him at the property last night, and he disclosed that he had several offers so far (a handful of FHA contracts which he is unable to accept, and a cash offer below the listing price). I guess he could always be bluffing about the other offers too .
I guess we'll see what happens today; we only gave him 24 hours to consider our offer. At least our agent is looking out for us .
Absolutely! What state are you in? Brandon's right on - if he wants to change the standard forms, you need to get an attorney involved - yours.
Your agent is right. Whether YOU are pre-approved and are confident you'll have no problem getting final approval or not, the HOUSE needs to qualify, and if it doesn't appraise and the lender says "No, thank you", you could be stuck in the position of being obligated to buy the house, with no loan. Not pretty.
We're buying a home in Arizona... I think the owner/agent guy is just an investor who got his real estate license as well.
So, if the house appraises (and assuming we have no issues with our financing) is there anything else that could happen after that point that would make us lose our earnest money?
I don't have a problem with the seller wanting 3k for earnest money as it's their prerogative. I would definitely make sure that you could get your earnest money back by having contingencies in your offer covering the inspection, the appraisal, and the actual funding of the loan. I've heard of many loan approvals being reversed at the last minute before closing. Also, seven days in my area is a fairly short time to schedule and inspection, get the report, and respond to it. The better inspectors are usually booked for a week ahead. Additionally, if you use his counter form, make sure there are appropriate provisions regarding the timing of counters on the inspection report.
7 days is pretty standard here, in fact if I am correct in our contracts, 7 days is the maximum amount of time to have an inspection completed, I personally usually have them done within 3 days, sometimes 1, I want to move ahead quickly....I have a great inspector I utilize who makes himself available night and day and sundays as well!!!
3k in earnest money - not a big deal, some sellers want to make sure that you are in fact serious about purchasing, some people will walk away from 1k, but not 3k
as far as what HE paid for the house has no bearing on the price it is selling, good for him if he got a rock bottom price and flipped the home with minor repairs, anyone has the ability to do that, it makes no difference either way.
NOW - keeping the earnest money is another thing - here the buyer has the right after the inspection to back out of the deal, they dont even have to say why they are backing out - could be buyer remorse even and get the earnest money back...which is probably why we have only a maximum of 7 days to get the inspection done. To me, that's a red flag and if the home doesnt appraise you should be able again to get your earnest money back, I mean really, you cant get a mortgage if it doesnt appraise.
Your attorney should not imho give attorney approval on any of that at all!!
wishing you luck and it sounds to me like you have a great agent working for you!! This is why people should be utilizing the good agents out there, god forbid someone had to go through this alone...and if this one doesnt work out - I assure you another will come along....
Traditionally here, it was 10 days. Of late, some sellers (usually banks) have insisted on 7, which IS a short time in which to get the inspection, have everybody get estimates on the repairs needed, and negotiate which ones the sellers will do/make allowance for. Especially with weekends involved. I do advise my buyers to contact an inspector before we send in the offer to let them know that we may, if it comes to contract, need to schedule an inspection pretty quickly, but if everybody else is getting inspections at the same time (which has been known to happen), it makes it difficult and puts unnecessary pressure on buyer AND seller.
You do understand that if you lost your job two weeks into the contract and as a result could not get a loan, that he would KEEP your earnest money. If something bad happens before close you would lose $3K.
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