How To Keep Earnest Money?

[Jon Schoeller]

Hello BP! 

My partners and I flip houses here in Charleston, WV. We flip between 45 and 50 houses per year and have done so for the last 3 1/2 years. We recently ran into a little streak of houses falling out of a contract just before closing. Some of them are earlier in the process due to being scared of inspections. (First time home buyers). 

We stopped taking earnest money about 2 years ago because it seemed like the buyer could ALWAYS get their money back. We understand if financing falls through but if you are just changing your mind a week before, that's a different story. 

With the recent fallouts, I was wondering if there was a workaround to this. Maybe we don't even call it earnest money but we call it "holding money" to hold their spot to buy the house? Maybe even a completely separate contract? 

We are just trying to avoid buyers from wasting our time. If they hold a house up for 30-45 days, it costs us money more money but they walk away scotch free. Even $1000 or $2000 dollars could help us without holding costs in the event they do back out. 

Maybe I should just mark it up as the price of doing business but it is frustrating. Thoughts? 

[Darius Ogloza]

The solution it seems to me is to negotiate tighter inspection windows so that you are not hanging out for a month or 45 days. The buyer cannot simply "change his or her mind" when the contract is properly written. The EMD return must be tied to a specific contingency not occurring.