Author Topic: Very high earnest money deposit  (Read 1427 times)

Cwadda

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Very high earnest money deposit
« on: July 17, 2017, 03:23:19 PM »
I was wondering if anyone had any experience with doing a high earnest money deposit on a real estate purchase? I.e. On a cash offer of $120k, you'd deposit $100k. As long as you have an option period in your contract, you wouldn't lose the money. Does this make sense to do to strengthen an offer?

Curious as to what other MMM investors think.

GizmoTX

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Re: Very high earnest money deposit
« Reply #1 on: July 17, 2017, 03:32:13 PM »
Then you'd have to finance $20K? Assuming this is even possible, what is the point? It still requires financing, which adds time to the transaction. Sellers are going to get all their money at the close (and then pay off any remaining mortgage of theirs) so they don't care how much you put down over the minimum unless you are offering 100% down, which removes the financing hurdle.

tralfamadorian

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Re: Very high earnest money deposit
« Reply #2 on: July 17, 2017, 04:00:15 PM »
Yes, a high earnest money deposit would strengthen your offer.  If you think that you would be in a situation where there may be multiple cash offers, then it would let you stand out. 

I've made a healthy five figure earnest money deposit on a deal that later fell through due to another contingency.  I wired the funds to the closing company and received the funds back with interest a few days after the contract was cancelled.  I don't think I would have gotten the property under contract for the price I did if I hadn't included a strong earnest deposit. 
« Last Edit: July 17, 2017, 04:51:24 PM by kellyincville »

lhamo

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Re: Very high earnest money deposit
« Reply #3 on: July 17, 2017, 04:22:09 PM »
We paid $75k in earnest money on a cash offer, 1 week close in order to keep the house we wanted from going on the market.  We also offered significantly over what they had been planning to list for, and bumped up our offer to cover 1/2 of estimated closing costs at their request.  We did have an inspection contingency, but the only major thing that came up was a broken/blocked side sewer, which we required that they fix.  Our agent advised that we not dicker about various other minor things that came up in the inspection, but just plan to fix them ourselves.  Oh, they did give us a credit to replace the water heater, which was beyond its useful life (though we are still using it at the moment...)

Closing ended up being delayed because one of the owners was overseas and his signed documents did not make it back in time for the original close date.  But we close in 10 days from our original offer date, 7 days from inspection date.

This is in Seattle, where desirable houses are going for significant amounts over list price with multiple bids.  We really wanted to get settled and really liked this house, so took our agent's advice on the offer and it worked.

secondcor521

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Re: Very high earnest money deposit
« Reply #4 on: July 17, 2017, 05:48:51 PM »
It all depends on the local real estate market and local customs.

Around here, that kind of behavior would probably raise suspicion more than strengthen the offer.

Things that would strengthen the offer more in my opinion:

1.  A higher purchase/selling price.
2.  Minimal to no contingencies.
3.  Offering to close fast.
4.  Asking for an acceptance/counteroffer quickly.

It has been a while since I bought a house, but IIRC anything from $1K up to maybe 3% of asking price is typical around here.  As the buyer, anything above that would make me worry that the other party might try to wiggle out of the deal and my money would be lost or tied up in escrow and a legal battle.

Cwadda

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Re: Very high earnest money deposit
« Reply #5 on: July 18, 2017, 07:53:21 AM »
Then you'd have to finance $20K? Assuming this is even possible, what is the point? It still requires financing, which adds time to the transaction. Sellers are going to get all their money at the close (and then pay off any remaining mortgage of theirs) so they don't care how much you put down over the minimum unless you are offering 100% down, which removes the financing hurdle.

Nothing would be financed. It'd be a cash deal. The earnest deposit is also cash, obviously.

Quote
Yes, a high earnest money deposit would strengthen your offer.  If you think that you would be in a situation where there may be multiple cash offers, then it would let you stand out. 

I've made a healthy five figure earnest money deposit on a deal that later fell through due to another contingency.  I wired the funds to the closing company and received the funds back with interest a few days after the contract was cancelled.  I don't think I would have gotten the property under contract for the price I did if I hadn't included a strong earnest deposit.
Thanks for sharing this story.

Quote
We paid $75k in earnest money on a cash offer, 1 week close in order to keep the house we wanted from going on the market.  We also offered significantly over what they had been planning to list for, and bumped up our offer to cover 1/2 of estimated closing costs at their request.  We did have an inspection contingency, but the only major thing that came up was a broken/blocked side sewer, which we required that they fix.  Our agent advised that we not dicker about various other minor things that came up in the inspection, but just plan to fix them ourselves.  Oh, they did give us a credit to replace the water heater, which was beyond its useful life (though we are still using it at the moment...)

Closing ended up being delayed because one of the owners was overseas and his signed documents did not make it back in time for the original close date.  But we close in 10 days from our original offer date, 7 days from inspection date.

This is in Seattle, where desirable houses are going for significant amounts over list price with multiple bids.  We really wanted to get settled and really liked this house, so took our agent's advice on the offer and it worked.
Great story. I'm sure it's worth quite a bit more than $75k nowadays!

Quote
It all depends on the local real estate market and local customs.

Around here, that kind of behavior would probably raise suspicion more than strengthen the offer.

Things that would strengthen the offer more in my opinion:

1.  A higher purchase/selling price.
2.  Minimal to no contingencies.
3.  Offering to close fast.
4.  Asking for an acceptance/counteroffer quickly.

It has been a while since I bought a house, but IIRC anything from $1K up to maybe 3% of asking price is typical around here.  As the buyer, anything above that would make me worry that the other party might try to wiggle out of the deal and my money would be lost or tied up in escrow and a legal battle.
Why might it raise suspicions? There is no wiggling out of the deal, it's all in a contract. If a seller is worried about a suspicious deal, they clearly wouldn't be using the right attorney/agent, or none at all.
« Last Edit: July 18, 2017, 07:56:31 AM by Cwadda »

secondcor521

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Re: Very high earnest money deposit
« Reply #6 on: July 18, 2017, 09:51:06 AM »
^ Regarding your last question about raising suspicions:

It wasn't clear from the original post whether financing would be involved.

If financing would be involved, a high earnest money deposit would be suspicious because there would be little to no reason to do so, and in fact reasons not to do so.  People who do odd things with money for little to no apparent reason are nearly by definition being suspicious.  Even if no fraudulent intent is involved, it makes the other person wonder if they're getting scammed somehow and just can't figure out how.

If financing would not be involved and it is just an all cash deal, that would surprise people around here (doesn't happen that much) but not be suspicious.

Cwadda

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Re: Very high earnest money deposit
« Reply #7 on: July 18, 2017, 03:19:12 PM »
^ Regarding your last question about raising suspicions:

It wasn't clear from the original post whether financing would be involved.

If financing would be involved, a high earnest money deposit would be suspicious because there would be little to no reason to do so, and in fact reasons not to do so.  People who do odd things with money for little to no apparent reason are nearly by definition being suspicious.  Even if no fraudulent intent is involved, it makes the other person wonder if they're getting scammed somehow and just can't figure out how.

If financing would not be involved and it is just an all cash deal, that would surprise people around here (doesn't happen that much) but not be suspicious.

Gotcha, thanks for clarifying.