Re: Newbie seeking advice - Posted by JPiper
Posted by JPiper on March 11, 2000 at 07:30:02:
There seems to some misunderstanding around about the subject of earnest money and Realtors?.perhaps this will clarify.
First, in the states in which I have done business (4) earnest money is NOT deposited until the contract is accepted. Typically there is a certain number of days in which the earnest money MUST be deposited by state law. What?s NOT done is to deposit your money first BEFORE an offer is accepted, NOR is earnest money simply shifted from one deal to the next deal.
Understand that broker escrow accounts (or trust accounts as they are known in some states) are run according to a set of very strict rules. These accounts are audited periodically by the state Real Estate Commission for infraction. Here?s an example of an infraction: Your $500 is sitting in the escrow account with no counterbalancing accepted contract specifying that dollar amount. The auditor will balance the account FROM the accepted offers. They simply ask the broker for all the pending contracts…they stack them up…then add up all the earnest money within all the contracts?.compare it to the balance in the escrow account?.if it doesn?t balance?the broker has an escrow account infraction. And in the real estate brokerage world?.escrow account infractions are taken VERY seriously?.you can be fined or lose your license over infractions. Now the auditor does more in looking at escrow accounts than this?but this is the first step.
Now, I haven?t read Ron Legrands courses, so I don?t know specifically what he said. But I approach this subject completely differently than what you have just described.
First, let?s understand that earnest money is NOT required to create a binding contract. What IS required is consideration. For an very good article on this topic see a ?How To Article? written by John Beck. But the use of earnest money by brokers is mainly an attempt to create some ?glue? in the deal, help to create performance of the buyer. So, again, earnest money is NOT necessary to have a valid, enforceable contract.
Next, there is NO SPECIFIC AMOUNT of earnest money that is required if you use it. It can be as large or as small as you want. But here?s a problem?..it?s one that relates to what I call STANCE. Unless you have the right posture, the right image in the eyes of the Realtor, the Realtor may have questions about your ability to perform. If you then attempt to use too small an amount of earnest money, that will simply reinforce the Realtors opinion of your ability to perform. But again, earnest money can be any amount at all?..but the weaker your stance, along with the smaller the earnest money, the less likely the Realtor is to take you seriously. So give some thought to your ?stance?.
Now, here?s how I handle earnest money quite frequently. I use 0. Now let me clarify. I deposit earnest money a certain number of business days AFTER I have removed my contingencies. I have a certain number of business days to remove my contingencies?..typically the inspection and approval of the inspection results. This gives me TIME to make certain I have a deal, TIME to market my property if that?s what I want to do.
How do I do this? I just do it. People believe I will perform?.my stance is strong. If I am asked about earnest money I know more than any Realtor I have ever dealt with about the subject of earnest money, consideration, etc. I point out that if I bothered to include earnest money with EVERY deal I would have WAY too many checks floating around out there to keep track of?.an accounting nightmare. I?m willing to put earnest money up?.but ONLY for deals that the seller has accepted?.and ONLY after I have inspected the property and approved it. Your knowledge and posture is POWER?.and people respond.
Now with Realtors, unlike many of the participants here, many times I?m not present when the offer is presented. Therefore, I will FAX an offer. Ever tried to FAX a check? Can?t be done. Therefore, depositing earnest money at a later date becomes a rational option when using a FAX machine.
One other point. Don?t know where Legrand is going with the Realtor thing?.but there are more deals outside the MLS than within the MLS. There are a few people around here that have been successful with Realtors (Steve Cook comes to mind), but not many. Your best deals are generally going to come from other areas. Guess what a motivated seller requires in earnest money??? ZIP!!!
Hope this gives you some ideas.