Don’t be outrageous with your end-buyer’s earnest money deposit request or you could kill the deal.
- I have seen new investors ask for a 20 or 30% earnest money deposit or EMD from their end-buyer and quickly lose the deal.
- The EMD you get from a buyer not only shows motivation and good faith, it also helps you cover your loss if he doesn’t come to the closing.
- Specifically, here the guidelines for what amount of EMD’s to require:
- Number one – generally, your end-buyer’s earnest money deposit should be 2 to 5 times what you put up as your earnest money deposit with the seller or the property owner.
- For example, if you had to put up $1000, then his should be at least $2000 and as much as $5000.
- If you can get more, go ahead and get it.
- If your earnest money deposit was $100 then you want at least the greater of 3% of his purchase price or $1000, again whichever is GREATER.
- Number two – if your seller makes a ridiculous request for say, $10,000 and you’re willing to risk it, then your end-buyer shouldn’t at least, put up the same amount.
- You can say to the seller ahead of signing your contract, “We typically put up $1000 earnest money deposit with our closing agent or attorney”.
- Say nothing after that and hand the contract to the seller to sign.
- While I am mentioning the word “contract”, please remember to always refer to the contract as “the Agreement” as it is more easily “digested” by a seller.
- If an end-buyer ever says he’s a HUGE buyer and he doesn’t put up EMD’s or earnest money deposits, stop what you’re doing and move on to the next buyer.
- Even the largest hedge funds and iBuyers put up earnest money deposits.
- Often, it’s the guys or gals who brag the most and who do the least.
- On a final note, whether you do a double closing or an assignment, it is possible to use the end-buyer’s earnest money deposit to cover your earnest money deposit requirement with the seller.
- You should explain the situation to the seller and get the buyer’s approval, but more importantly, you must get it in writing from the end-buyer.
If you have any additional questions, contact me directly at DaveDinkelQuestions@gmail.com.
If you need hard money instead of transactional funding, contact me for referrals to private hard money lenders.
Be sure to check out BestTransactionalFunding.com for all your same-day double closing needs, including a list of Investor-Friendly Closing Agents in various states.
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