Using Earnest Money As A Negotiating Tool
You’ve probably heard it before, but everything is negotiable. As someone who has dealt with literally hundreds of real estate agents in markets all across the country as well as thousands of real estate investors, I see and hear many strange things.
It amazes me what some investors think they can do and it amazes me even more what real estate agents and brokers don’t think can be done.
Let’s talk about Earnest Money as an example. I’ve talked to a handful of real estate agents that believe you can never put a house under contract with just $20 in earnest money. Not true.
I’ve done it. Dozens of people I personally know have done it. Can it be done via the Multiple Listing Service (MLS) when working with real estate agents? Not usually. However, earnest money is completely negotiable and can be used to show that you are either a weak or a strong buyer.
If you go to a real estate agent to write an offer to buy a house and you tell them that you want to put up $20 (or some other ridiculously low amount) as earnest money, I would not be surprised if they told you to work with someone else. If you were my client, I would not want you wasting my time–especially at $4 per gallon for gas–taking you to see properties only to have you show the seller you’re really not serious when making an offer to buy.
Putting up a fair amount in earnest money can show that you are a serious buyer. If you are presenting a similar offer to another buyer with a larger earnest money deposit, you have a better chance of getting your contract accepted and buying that property.
Does that mean that you need to put the money up when you write the contract? Not necessarily. Talk to your agent or broker and find out if you can write the offer and have the earnest money due within a few days of having the offer actually accepted.
If you are actively investing and making multiple offers, it really helps to conserve your cash and only pay earnest money after a contract is accepted. I recommend this to investors that write contracts with me in my market. This is especially true with short sales and bank owned (REO) properties because it can take weeks, or even months, to find out if a contract has been accepted.
So, while you may be able to put a house under contract with very little in earnest money, it is NOT the norm when buying through the MLS and shows that you are not serious about buying. Rely on the experience and knowledge of your local real estate agent to discuss the benefits and downsides associated with the amount and timing of earnest money in your particular market.
Until my next post,
James
P.S. For our Real Estate Investor Bronze Members where I teach strategies for buying properties outside the MLS by using marketing it is a very different situation and relatively low earnest money is the norm not the exception. Sign up for Real Estate Investor Bronze Membership to access our extensive training collection of over 100 topic specific real estate courses plus on-going training and consulting sessions.
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