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What If the Seller Wants an Earnest Money Deposit? (and You Don’t Have it)

In the state of Florida, and I’m pretty sure that in MOST states across the U.S., there’s no Earnest Money required to make a real estate contract legal or enforceable. The exception to this rule is if you’re entering into an OPTION to Purchase Real Estate in Florida. In that case, a $100 Option Deposit (Consideration) in required to make the option enforceable.

As a real estate licensee, we’re required to attend a pre-licensing training class, which is 45 hours long.  We’re issues a handbook which overs the Laws, Principals, and Practices of being a real estate licensee.

I found a copy of the 2004 Edition on Google Books, which is the latest one that I could find for free.

On Chapter 11 – Page 208 – Line 28 thru 43 in the Pre-Licensing Requirement Handbook, (the chapter about contracts), it specifically states that NO MONEY is required to make a contract enforceable, and explains what “consideration” really means.

I took a screenshot of the page out of this book, all you have to do to view this page is LIKE THIS POST to unlock the image!!!  This should settle the score ONCE AND FOR ALL.

What Does Earnest Money Mean?

Earnest Money is a deposit made to a seller by the buyer that represents his good faith. Giving an earnest money deposit shows that you’re serious about buying the property and that you intend to close the transaction. In a traditional real estate transaction, you can expect to pay 1% – 5% of the purchase price as an earnest money deposit. A real estate wholesale transaction isn’t your usual type of deal, so the earnest money requirements by the seller normally go right out the window.

How Much Earnest Money is Required on a Real Estate Contract? Answer: NONE! (See Below)

Earnest Money Deposit

If you’re dealing with the right motivated sellers, then they’re not going to ask for an earnest money deposit in most cases. By the “right” sellers, I’m talking about MOTIVATED sellers, the ones that NEED to sell their house.

The instances where I’ve seen sellers ask for earnest money is usually either when the sellers are of a more sophisticated nature (usually higher-priced houses), or when they consult with their attorney, and the attorney advises them to ask for Earnest Money. 

In most of the 50 United States, and Earnest money deposit is NOT required on a Real Estate Purchase and Sale Agreement. The promise to buy is the consideration that’s required to make the contract enforceable.  To avoid the topic, you can completely removed the Earnest Money line item from your contract. The seller doesn’t see it, and therefore they don’t ask for it.  Brilliant!! 

In the event you get one of these sellers that insists on an Earnest Money Deposit, and you want to remain RISK FREE, there are a few things that you can do.

  • Write into your offer that the EMD is due within 7 days after acceptance. This could buy you some time to see if you can get a buyer for your contract (assignee) within that time frame who can put up the money. If you don’t get any takers within 7 days, you can cancel the whole deal. This isn’t the best practice, but an option.
  • Tell the Seller that Since you Close so fast, you typically don’t put up Earnest Money Deposits.
  • Tell the seller that you need to keep your cash liquid, so that you can close on the contracts that are scheduled to close in front of his.Offer the seller $10. Just because the seller asks for an Earnest Money deposit doesn’t mean that they want your arm and leg. 
  • Offer them $10. Some people think that they MUST get at least $1 to make the contract legal.  Crazy, right?
  • Forget the whole thing.  Sometimes you just have to tell the seller to kick stones (in a nice way, of course), if you can’t agree.  I mean, if you write a big check, you may lose a big check.

I’ve closed nearly 1,000 real estate transactions via assignment of contract, and I can count the number of times that I’ve put up Earnest Money on one hand. I just refuse to give sellers my money.  But I’m a hard headed fool. It hasn’t affected my success in the past, and it certainly wont affect my success to get deals closed in the future. 

If you want to learn how to wholesale real estate the Property M.O.B. way, check out our Bad Ass Real Estate Coaching Course or consider hiring the MOB as your personal coach and mentor.

3 thoughts on “What If the Seller Wants an Earnest Money Deposit? (and You Don’t Have it)”

  1. There is another option: we write in our contracts that an EMD of $100 is held in escrow by our attorney (which is the truth… but it is $100 only and it counts for all our deals, just in case…). I’ve never had anyone who did not agree with that.

  2. Hello my name is Stephanie, I am new to Whole Selling. I have a seller that wants to sell me seven of his properties at one time with back to back closings on each of these properties. The seller is asking for a lump sum for all of the properties. I looked up the market value on each of these properties. Each equation gave the ARV x .70% – Repairs – My Fee, gave me the ( MAO ) The seller wanted me to add all of the MAO’s together to give him an offering price. I couldn’t get the seller to give me a price, so I made him an offer, and it was accepted. Now the seller wants me to give him a non-refundable $10.000 earnest money deposit. The seller will not sign the Purchase To Sell Agreement until I do this. The seller states, he is highly motivated to sell, although four of these properties have tenants living in them. Theses are Single -Family homes with a property B rating. I’m so stuck. What should I do ?

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