earnest deposit = full purchase price? give me a big advantage?

Question

reading the rich dad poor dad book and he said at one point that he made an offer to the bank on a forclosed property. with his bid he sent a cashiers check for the full amount so they knew he was serious, the bank took his offer.

That doesnt sound like a terrible idea....

say im looking at a property that the bank has listed for $25k.

if I made an offer to the bank of $15k and included a cashiers check for the earnest deposit in the amount of $15k. do you think this would substantially increase the likelyhood of the bank just simply taking it compared to a $500 earnest deposit?

anyone ever done this? I would think the bank may be very tempted to just take an offer that has a check for the full amount included.....

Account Closed · Answer

@Walt Payne @J  Scott

thank you very much for the note regarding no contingencies. exciting to know that this could help give an edge. and an edge is needed! so many other investors to compete against. I keep getting outbid at auctions and on MLS listed properties, crazy how many other investors there are in Omaha it seems.

the last two houses ive purchased Ive done without inspection or financing contingencies. I feel pretty comfortable and prefer to do the inspection myself since I tend to be the person doing the bulk of the rehab work. not the most savy investor thing to do all your own rehab work but I enjoy it (except drywall work, i hate, hate it, and im slow).

each of the last two houses were higher dollar value and ones that I eventually moved into. Im finally able to do a property purely as an investment. Typically i look for big rehab projects, some that others may think are getting close to being worthy of demolishing and with some code violations.

the specific house im looking at is 1,000SF and I anticipate purchasing and sinking about $25k in a basic reno plus misc., having a total 45k invested(an thats with me doing a good portion of the work). good neighborhood, house needs allot of work but is structurally sound, just has no driveway or garage, this is the big negative for owner/occupants in my opinion. with no garage I believe I can rent it for around $680/month minimum and keep it easily occupied constantly.  i know its not 2%, but around here it seems that 1.5% is about as good as you can get unless your getting into large multi's or going into bad neighborhoods.

by the way. I LOVE THIS SITE! everyone is so knowledgeable and helpful. I would be rich if i found it years ago! thanks

Account Closed · Answer

anyone else ever tried this? did it have an obvious effect?

Account Closed · Answer

Thanks @Jean Bolger , good point about who holds the funds.

Account Closed · Answer

ultimately the question is, if you include certified funds for the earnest deposit in the full amount of your offer, would that give a substantial likelihood of the bank just accepting an offer that otherwise would be viewed as somewhat excessively low? such as 15k offered on a  25k asking price.

its basically giving them a guaranteed closing and a quick one at that. guaranteeing their carrying costs to soon be ending, among other benefits that the bank may view from this, at least in my opinion...

yes there is an actual property that i am debating on doing this with, and those are the numbers

Account Closed · Answer

ok...... lets assume that included in the offer proof that I have sufficient funds and the check is a cashiers check

Walt Payne · Answer

@Isaac Essex  As J. Scott said, contingencies are more of an issue than anything. Larger EM does prove sincerity, but only if there are no weasel clauses to allow you to keep it. Large EM with no contingencies has helped me to get properties in the past.

Second, and a different issue ... do you know and understand what you are getting into by buying a $25k property? I am not saying not to do it, lots of people are successful with those properties. But lots get in over their heads because they don't understand the neighborhood, or the repairs, etc. If you do it, do it with full knowledge of what is involved.

J Scott · Answer

I've done this plenty of times.  Some thoughts:

-  First, this is going to work much, much better when you have no contingencies in the contract.  If you have an inspection contingency, the $15K is meaningless, as you can still get it back.

-  Second, this worked much, much better a few years ago when there wasn't so much competition for properties.

-  Third, this is less likely to be an effective way to get the bank to accept a low offer, and more likely to be an effective way to get the bank to accept YOUR offer against competing offers (for example, you offer $15K with $15K EM; someone else offers $17K with a financing contingency).

Jean Bolger · Answer

Well, it's obvious you have the funds, it's a cashier's check. I'm not sure why that even came up...

Yes, I think it would certainly strengthen your offer. But I'd want to take good care of that cashier's check so it doesn't end up going astray. Often a buyer's agent will either put the earnest money in their brokerage's escrow account or just keep the check in their files and send a photocopy of the check to the listing agent. I'd be more comfortable with a scenario like that.

Jassem A. · Answer

I wouldn't think it would make a difference since they are probably going to want to see a bank statement to see that you have the money anyway.