Posted by Redline on January 08, 1999 at 14:09:31:
I was not aware that some states had an earnest money requirement. Here in NJ earnest money is NOT required to make a contract complete. When realtors have complained about it I just tell them I don’t work that way and that’s it.
Pat: This might be a dumb question but, exactly what contingencies are you talking about?
RL
Earnest Money - For Jackie(Dallas) - Posted by John Estell(Denver)
Posted by John Estell(Denver) on January 08, 1999 at 11:49:26:
Hi Jackie. Once again let me say again thanks for all the know how you are providing for us. Listen I know you just give the homeowners $10 but here in Denver it’s $1,000 which is pretty bad for people getting started that don’t have the $1,000. Fortunately for me I worked with someone(Bill Bronchick) who allowed me for my first deal to put up the money himself to allow me to flip my first property. So I guess you can get around what ever the going rate is in your state. Now I’ll have the money to put up the earnest money. I have a question on your steps( which are excellent): When you go to the title company to turn the contract in to, 'how much does this generally cost? When you turn it in to them do they do a title search to see if liens are on them to? Thanks so much and you’re a great addition to the great mentors on CRE Online. Oh yeah, let’s try and get Joe Kaiser back. Take care and see you in Dallas!! One thing: when you say at step 10 that when you get this far to contact you. I want to see if I’ve figured this out. Do you just start all over again and do it again and again and again and well you know what I mean. Take care.
Re: Earnest Money - For Jackie(Dallas) - Posted by John Estell(Denver)
Posted by John Estell(Denver) on January 09, 1999 at 16:36:47:
Thanks to all for your responses.
earnest money vs. consideration - Posted by Rob FL
Posted by Rob FL on January 09, 1999 at 12:02:28:
Many people especially Realtors confuse earnest money with consideration. Consideration IS required for a contract to be binding, earenst money is not. Earnest money is a form of consideration but not the only form.
Consideration means that in order for me (buyer) to get you (seller) to agree to be bound by the contract that I will give you something in return. The consideration is the purchase price. I will give you $100,000 as consideration for your house. It does not matter if this consideration is in the form of a seller held note 100% financed or all cash out of my pocket. The consideration is the purchase price. The earnest money is a part of the price. I pay part now (earnest money) and part later. But by no means is earnest money a requirement. Many sellers insist on it to “have you on the hook” for something in case you back out.
If the seller signed a contract to give me the house for $0 (no consideration) and he receives nothing else for giving me the house, then this could be considered an unenforceable contract because there is no consideration (no benefit to the seller). In other words if the seller changed his mind before closing he could probably back out and it would be difficult for the buyer to sue for specific performance since there was no consideration to the seller.
Re: Earnest Money - Posted by JPiper
Posted by JPiper on January 09, 1999 at 02:41:26:
John:
A few comments on earnest money.
You can get a lot of misinformation about earnest money. Realtors are one of the biggest sources of misinformation. Chances are that the information you are working with regarding your state comes from that source, or one like it. There is no requirement in ANY state that I?m aware of that the earnest money be $1000 or any other amount.
There are usual and customary amounts that Realtors sometimes suggest, or expect, or the especially misinformed ones may even try to require. But there is no minimum.
There was a time when I used to use $1 as MY standard earnest money amount. I once tied up about $400K in property with a rumpled one dollar bill that I pulled out of my pocket and made the seller sign a receipt for. Many of the times I would use $1 I would get an objection, which I had to learn how to handle. That?s what you need to do. But whether you use $1 or $1000 the contract is no less binding.
Over the years I have raised my earnest money amount. I first raised it to $10. Now I typically use $100. But I vary the amount depending on the rest of my contract and the general situation. Sometimes I use no earnest money?.but I insert a provision in the contract that once my inspections are complete I will deposit an earnest money amount. Sometimes I make this particular amount a large amount?.and use that as a selling tool to indicate my seriousness?and to make up for the insufficiency of the contract in other areas (like price). I?m always amazed when sellers go for this?but they quite commonly do.
Just understand that this is a game. Everything is negotiable. Once you understand that the game becomes easier.
By the way, a contract DOES NOT require earnest money to be valid?.not even $1. Earnest money is not an essential element of a contract.
JPiper
Re: Earnest Money - For Jackie(Dallas) - Posted by Jackie in Dallas
Posted by Jackie in Dallas on January 08, 1999 at 15:50:59:
Is it the realtor WANTS $1000 as earnest money or is there some kind of state law? You need to find out what the LAW say. A title company should be able to give you that info.
How about a split earnest deposit…
Put $10 in escrow at the time the contract is signed and say that you’ll add an additional $990 upon approval of the property by your “partner”. Guess who has to come up with the $990? That’s right - your partner.
There is NO CHARGE when you turn in a contract to title company. The first thing they will do is order a title search.
The 10th step is to learn new ways to find houses besides just driving around neighborhoods - I’ll discuss some of them in my next article.
Earnest Money - What I Do - Posted by PBoone
Posted by PBoone on January 08, 1999 at 12:28:58:
This is off your subject question, but I thought it may help some. When a seller or realtor asks me for earnest money I alway’s put “$1000.00 note due upon removal of all contingencies” Using this statement has NEVER been questioned. It’s not that I do not have the money because I do. I just hate having money sitting and not working.
Pat
Technical Correction - Posted by J.P. Vaughan
Posted by J.P. Vaughan on January 09, 1999 at 17:59:56:
You are correct that no earnest money is necessary and
that it is not necessarily consideration. But it is not
the purchase price that is the consideration. It is your
“promise to perform” according to the contract.
The seller promises to sell and the buyer promises to buy.
That is mutual consideration. No earnest money is needed
to bind the contract.
Your last paragraph could be incorrect. If the house is
seen as a “gift” you might be right. But if the person
to receive the house relied on the gift giver’s promise
to give him the house, and his reliance on that promise
caused him a detriment, you would be wrong.
JPV
Re: Earnest Money - For Jackie(Dallas) - Posted by John Estell(Denver)
Posted by John Estell(Denver) on January 08, 1999 at 16:00:41:
Thanks again. You’re truly helpful. I’ll be glad when I get up to speed.
Re: Earnest Money - What I Do - Posted by John Estell(Denver)
Posted by John Estell(Denver) on January 08, 1999 at 12:35:18:
Thanks Pat. I’ll try this approach and see what we get. If working strictly with a seller and not an agent this could possibly work. I’ve only worked with an agent on my first deal. Thank you again.
good vs. valuable consideration - Posted by Rob FL
Posted by Rob FL on January 09, 1999 at 18:43:23:
You are correct. I didn’t want to go into to much detail. “Valuable” consideration means something of value (the purchase price or other money in the sales contract). “Good” consideration is involved in a gift. It is tough to get good consideration to stand up in court and even tougher for a title insurance company to rely on it. Thanks for correcting me.
Re: Earnest Money - For Jackie(Dallas) - Posted by Chuck(SW MO)
Posted by Chuck(SW MO) on January 09, 1999 at 24:42:59:
John,
If we ever make it up to speed, get rich enough, have enough property or have achieved all that we set out to do, we will have lost the thrill of the kill:)
That’s my two cents worth.
Chuck