Earnest Money, How Much Is Enough? - Posted by matt

Posted by Jerry on February 01, 2002 at 17:38:46:

I meant to post this under a different thread. I’ll repost there.

Earnest Money, How Much Is Enough? - Posted by matt

Posted by matt on February 01, 2002 at 12:34:00:

How much money will usually be acceptable by a FSBO or a home that I would purchase through a Realtor? I have absolutley no idea.

Re: Earnest Money, How Much Is Enough? - Posted by matt

Posted by matt on February 03, 2002 at 22:15:41:

Just wanted to thank everyone for the feedback. Since I received such a wide range of figures, I guess my best bet would be to check with a RE attorney in my area. He would know what is exceptable where I will be investing.


Re: Earnest Money, How Much Is Enough? - Posted by Procapital

Posted by Procapital on February 02, 2002 at 11:52:57:

It depends on how negociate with the seller. I have done NO MONEY, using a promisory note with the clause “to be cashed at closing”

Doesn’t anyone use promissory notes? - Posted by Brent_IL

Posted by Brent_IL on February 02, 2002 at 08:55:01:

Are some agents not accepting promissory notes funded at acceptance or settlement? The reason I’m asking is because I usually don’t have a problem with Realtors. It’s the FSBOs that want cash.

Re: Earnest Money, How Much Is Enough? - Posted by BCat (SoCal)

Posted by BCat (SoCal) on February 01, 2002 at 17:45:38:

Strictly speaking, earnest money is not required (at least in California, see http://www.creonline.com/art-111.htm). So, what is it for? As mentioned by others, it helps to make the seller comfortable with your offer, and that you will go through with the purchase. You will have to work out what works in your area and with the type of people you’re dealing with. Psychology can play an important part in this. To a low-income person, the purchase price of their home may be so far outside the range of numbers that they’re used to dealing with when thinking about money, that it might not seem quite real to them, but a check for $1000 is something that most people can relate to, because everyone sees advertisements for things that cost $500-$1000, such as consumer electronics. Contrawise, for someone selling a house for over $400K, a $1000 check is ‘change’, and is generally not very important, especially because people who earn enough money to buy and sell these types of houses are generally well educated, they play by the rules, and expect others to play by the rules too, so if someone signs a purchase contract with them, they fully expect the sale to go through, and generally don’t tend to think that the buyer would back out.


it really does depend… - Posted by David Krulac

Posted by David Krulac on February 01, 2002 at 16:01:24:

typically we do $1,000 on low priced properties. sometimes we do 10% of the purchase price and on occasion we have put up 100% of the purchase price as the contract deposit. On the high end we have put up as much as $310k deposit.

David Krulac

As much as it takes - Posted by Ron (MD)

Posted by Ron (MD) on February 01, 2002 at 15:56:35:


I’m a rehabber and I buy fixers…usually between $15k and $25k. Almost all my houses are REOs, listed by realtors.

If I’m making an offer directly through the listing agent, I ask that agent what they recommend. The answer is usually $500 or $1,000. Sometimes it’s $2,000. Once, it was $10,000 on a $22,000 property. The listing agent knows if a larger deposit will sway the seller.

If I’m making the offer through a buyer’s agent (who happens to be me), I automatically put up a $2,000 deposit.

Here’s the way I look at it. I’m a cash buyer. If my offer is accepted, I gotta fork over the entire amount in about 30 days. Frankly, it doesn’t make much difference to me if I have to part with a significant chunk of that today, rather than 30 days from now.

On the other hand, the sellers (i.e., banks) are very wary of investors who are less solvent and don’t make it to settlement. I use a higher earnest money amount to send a clear message to the seller…I’m the real deal and I will get to settlement. (I also automatically include a letter from my bank showing proof of available funds.) Frankly, if I thought it would make a difference, I’d put up the entire contract price as earnest money.

I pay less for properties than a lot of other investors. Since my offer is almost always significantly below list and often below what others will pay, a higher deposit is one way I try to give more weight to my offer.

So, Matt, if you offer a couple thousand dollars more than me, but the bank looks at your $100 deposit and my $2,000 deposit, I just may walk away with the deal.

By the way, when I’m buying a FSBO (which is usually in the same price range), I give a $500 deposit. Normally, I’m not competing against anyone and might be able to get away with less. However, even if my seller is agreeable to $10 or $100, I don’t want a friend or family member telling them I’m scamming them.

Ron Guy

It depends… - Posted by Rob FL

Posted by Rob FL on February 01, 2002 at 15:18:24:

On FSBO’s, I try to do as little as possible but my minimum is $100. I figure anything less and it may not pass a court’s liquidated damages approval. Meaning that if the seller’s only remedy if I default is to keep the deposit and not sue me for actual damages or specific performance, then the deposit needs to be half-way reasonable.

On Realtor listed properties, I usually offer between $500-1000 depending on the price. My rule of thumb is under 50K offer $500, over 50K offer $1000.

On properties where there are probably going to be multiple-offers, I try to make the deposit higher to make the offer look strong. I made an offer this morning on a bank REO. Their asking price is 75K. My deposit is $2000. I want to get their attention. They might just pick my offer over somebody elses.

On all offers, I make the deposit to be put into escrow within 2 days of seller’s acceptance. That way I can make all the offers I want without worrying about an earnest money deposit.

Re: Earnest Money, How Much Is Enough? - Posted by bob

Posted by bob on February 01, 2002 at 15:17:47:

As little as possible! Most realtors want $1,000. I would start at $100 for FSBO’s!

I do $500, but I did do $1k for my OWN home, but - Posted by Carey_PA

Posted by Carey_PA on February 01, 2002 at 14:53:16:

I got $1,100 back at closing :slight_smile:


Re: Earnest Money, How Much Is Enough? - Posted by Graywolf

Posted by Graywolf on February 01, 2002 at 12:39:56:

Max is $1,000

Re: Doesn’t anyone use promissory notes? - Posted by Tim Fierro (Tacoma, WA)

Posted by Tim Fierro (Tacoma, WA) on February 02, 2002 at 09:54:30:

I wouldn’t accept one, unless you explained to me why. If there is a good reason for it, then I would get my sellers to accept it. I don’t mind notes until an inspection or weasal clause, but after that, you would cough up as your intent is to close and you will need the money anyway. When working for the sellers, I want money on the table so that if you go weird on the deal, there is some money that we can keep. I try to limit the out to 10 days for an inspection or some other clause, and then try for 21 days for financing completion. If financing not complete, I want a release so the sellers can keep the earnest money if you can’t close.

IOW, I want cash somewhere so that my sellers can keep it since they have taken their house off the market.

So with agents, like me, you may not have a problem, but with FSBO, they are probably not used to it. You will have to convince them that this is necessary for your buyers to make this deal happen. Do you really need to take a note all the way to close? They may be balking since there is no recourse for them since there is really no cash sitting in escrow should the deal not take place.

Re: As much as it takes - Posted by Jerry

Posted by Jerry on February 01, 2002 at 17:37:04:

Ron, if she’s pre-approved, does her lender care about the fact that title hasn’t been seasoned for a year? I’m assuming you’ve owned for less than a year.

How do you normally get around this?