Earnest money required on For Sale By Owner(fsbo) offer?

Question

Title says it all.    Correct me if I'm wrong but(in Utah) on an accepted MLS offer the buyer writes an earnest money check and the check is held by the selling agent's broker's office... and only under certain conditions can they cash the earnest money check.

How does this work with fsbo offers?  I was going to make an offer to the owner of a 4-plex building near me. I've spoken to him a couple times about buying the property but nothing has ever come of it.. I though I would give him an official offer to let him know I'm serious.  Should I include earnest money with this offer?  If he accepts the offer would I just drop off an earnest money check at his home?

Thanks kindly

Jackson Pontsler · Answer

@Ray Loveless everyone has offered sound suggestion.  @Jaiden Olsen and @James Wise have said you need to select a entity who have legal duties to protect your earnest money.  As long as the contract isn't breach there shouldn't be an issue of getting the earnest money.  I like title companies because it acts more like a bank and don't have as much emotion involved.  Either way the seller can seek confirmation by physically visiting the location or simply calling the entity.  You need to state who is holding the EM as it now becomes both yours and theirs and will ultimately be decided on based on the terms of the contract.

I hope this helps I'm glad we got some sound people on this forum.

James Wise · Answer

It's all negotiable. There is no set rule. I have done many deals where the buyer's broker held the EM & many where the title company held the EM. It's between you & the buyer to come to a reasonable agreement. I don't see either being an issue as both the buyer's brokerage & the title company have legal duties to protect that EM in a non interest bearing trust account. The one thing you should never do is a deal where the seller holds the EM directly.

Jackson Pontsler · Answer

NOOOOO earnest money is held at the title company.  There can be disputes if you gave him the check (i.e. never recieved the check).  I have no idea about the agent's broker's office but my wife and I have never done that on any on market or off market purchases.

Earnest money is how you make your contract executable and prove intent to buy.  This is why guru's that are saying put the house undercontract with 0 earnest are getting their clients in trouble.  If the seller decides I don't want to sell it to you and the person try to take them to court to force the execution of the contract, that 0 earnest money shows 0 intent on buying.  If you are looking for the minum that I've seen investors put down its $500 and if the contract fails to be executed you can get your money back as long as your not in breach.

Just get the contract sign get the earnest money and drop both off at your prefered title company.

Hope this helps if it does let me know.

Jaiden Olsen · Answer

My most recent FSBO was a seller financed deal. He requested that he choose the title company that I deposited my earnest money. My realtor complained about it and requested that he hold the money. I don't have a problem with either my agent holding the earnest money, or the title company (whether it is selected by me or the seller). As Jackson said, I wouldn't, for anything, give earnest money to the seller's broker.

Ray Loveless · Answer

@Tyler Bond,  Good question. I was just planning on printing and using the regular agent REPC.  I'm not an agent either.  I think that's the general best practice but I'd like to hear otherwise if I'm wrong.

Ray Loveless · Answer

@James Wise, Thanks. Yeah dropping off a check to the seller didn't make sense!

Tyler Bond · Answer

@Jackson Pontsler, @Jaiden Olsen, and @Ray Loveless I came across this thread this morning and am curious if you guys use the REPC (real estate purchase contract) ,that agents have to use, when making offers on FSBO? Or do you have your own contract that you use?

Michael Heisterkamp · Answer

Earnest money is generally held in one of three places.  With the Brokers escrow account, a non broker affiliated escrow account or the title company's escrow account.  At no point should escrow ever be directly held by any affiliated party with the transaction until it is completed.  In your case I would go with the title company option becuause that is a party that both sides will have to work with.  Also, you don't need to worry about an escrow check until he accepts the offer and given your prior description of him I wouldn't be holding my breath.

Ray Loveless · Answer

@Jaiden Olsen, interesting... does the title company usually hold the earnest money or does your agent( the buyer's agent)?  If I were selling I'd prefer the title company to hold the money...

Ray Loveless · Answer

@jackson pontsler, Thank for the clarification.  So.. after I get the signed contract i drop off the earnest money off at a local title company with a copy of the contract?  How does the seller get proof I've put in the earnest money?  Is it something they can call the title company about if they are concerned...?

Earnest money required on For Sale By Owner(fsbo) offer?

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