Skip to content
×
PRO
Pro Members Get Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
$0
TODAY
$69.00/month when billed monthly.
$32.50/month when billed annually.
7 day free trial. Cancel anytime
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Real Estate News & Current Events
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated almost 4 years ago, 01/03/2021

User Stats

10
Posts
15
Votes
David Braun
15
Votes |
10
Posts

Non Refundable EMD (in Multifamily)

David Braun
Posted

Hi all! I recently lost a deal I was trying hard to get. We were one of the top two offers but we lost it when the other party offered non refundable EMD. I know this is very common, just wondering how to deal with this. I was uncomfortable putting down EMD as this would be the first deal I did on my own (as part of a syndication) and I didn't feel confident enough.

Are there exceptions in which case the "non refundable" money would nevertheless become refundable?? I.e. what's if the Phase 1 discovers a serious environmental issue? Or structural issue discovered.....? I am sure the non refundability clause can be customized but what are the norms with this? How can I feel more comfortable offering non refundable EMD? Thanks!

User Stats

323
Posts
224
Votes
Catherine Emert
  • Realtor
  • Bend, OR
224
Votes |
323
Posts
Catherine Emert
  • Realtor
  • Bend, OR
Replied

We write offers that earnest money will be non-refundable after the inspection period - you are less likely to back out after the inspection is acceptable so it's a bit safer while still a little risky. 

User Stats

10
Posts
15
Votes
David Braun
15
Votes |
10
Posts
David Braun
Replied
Originally posted by @Catherine Emert:

We write offers that earnest money will be non-refundable after the inspection period - you are less likely to back out after the inspection is acceptable so it's a bit safer while still a little risky. 

Yes, that I know. The offers I am competing against are putting up non refundable EMD from day 1. After the inspection period doesn't compete against them.

BiggerPockets logo
BiggerPockets
|
Sponsored
Find an investor-friendly agent in your market TODAY Get matched with our network of trusted, local, investor friendly agents in under 2 minutes

User Stats

51
Posts
14
Votes
Adrie Moses-bailey
  • Miami, FL
14
Votes |
51
Posts
Adrie Moses-bailey
  • Miami, FL
Replied

Unless 1) you have a lot of money, 2) you are buying so below market it doesn't matter or 3) you negotiate a very low deposit then I would not offer from day 1. I would think they are offered only once the PSA is signed by which time you should have the DD materials to know if you want to make an offer. Any reason you can't put a badboy carveout (fraud),title or environmental carveout into the EMD agreement?

User Stats

11
Posts
11
Votes
Tae Sung Yoon
  • Real Estate Agent
  • Anchorage, AK
11
Votes |
11
Posts
Tae Sung Yoon
  • Real Estate Agent
  • Anchorage, AK
Replied

In my experience as a realtor, competing against an offer with non-refundable earnest money is hard to compete against because it shows strength & confidence that the buyer will go through with the sale. It also gives the seller a sense of insurance in the event that the deal falls through. The only way for you to compete is by keeping your contract as clean as possible and making sure your terms align with the seller's goals. I always recommend calling the listing agent (or seller if FSBO) and asking them a few questions. They're usually fairly cooperative and will give you some information.

Once you find out their goals & timeline, you can have a better shot of pending by either giving the seller the highest net offer, adding in an "as-is clause", shortest amount of time to close, or by matching the "non-refundable clause" by the other party. This property must've been one heck of a deal if the other buyer offered a "non-refundable clause" to their offer.

With interest rates as low as they are right now, I've noticed that there are a lot more multiple offer situations today than there has been in the last few years. My advice is to act quickly when you find a property that fits your criteria and try to be the first offer. If your offer is going to be below asking price, make sure you back up your offer with an explanation and other comparable sales that have sold within the area. Lastly... Don't give up! A good one will pop up. Just be patient but at the same time... be ready! I wish you the best of luck on your next offer!

User Stats

324
Posts
266
Votes
Mark F.
Pro Member
  • Rental Property Investor
  • Elgin, IL
266
Votes |
324
Posts
Mark F.
Pro Member
  • Rental Property Investor
  • Elgin, IL
Replied

@David Braun its hard to compete with a solid offer or one with non refundable EMD, from the sellers perspective those deals are more likely to close with no issues or delays and even when the offer is less most sellers might be inclined to accept over a higher offer with contingencies. The market is crazy hot right now, too many people including investors competing for the same properties. I've had a few offers recently that I put in for all cash, no inspections, no contingencies, $10k non refundable deposit and can close in 5 days (or whenever title is ready) and I'm having problems getting deals..... welcome to the new norm (for now anyway)

  • Mark F.
  • User Stats

    17,331
    Posts
    29,870
    Votes
    Russell Brazil
    Agent
    • Real Estate Agent
    • Washington, D.C.
    29,870
    Votes |
    17,331
    Posts
    Russell Brazil
    Agent
    • Real Estate Agent
    • Washington, D.C.
    ModeratorReplied

    You said syndication, so Im assuming this is a commercial grade property? In my market, most of the commercial deals have non-refundable EMDs. 

    business profile image
    District Invest Group
    5.0 stars
    45 Reviews

    User Stats

    261
    Posts
    168
    Votes
    David Lilley
    • Rental Property Investor
    • Dallas, TX
    168
    Votes |
    261
    Posts
    David Lilley
    • Rental Property Investor
    • Dallas, TX
    Replied

    @David Braun the only way to compete with that is to not compete. Either focus on finding off-market deals where you are the only horse in the race or pick a different market. I was in the same predicament when I started out, so I started looking in less competitive markets until I gained enough experience/confidence to compete with those hard money offers. 

    User Stats

    4,039
    Posts
    2,376
    Votes
    Steve Morris
    • Real Estate Broker
    • Portland, OR
    2,376
    Votes |
    4,039
    Posts
    Steve Morris
    • Real Estate Broker
    • Portland, OR
    Replied

    Try and write the PSA with EMD non-ref on Day 1, but see if conditions like failure to appraise at price or seller default are included.

    Think the biggest risk is insulating yourself from 3rd parties (like lenders, appraisers and inspectors) that you have no control over.

    Some times with experience, you can see from the get-go it's a steal.  Sometimes you can take a walk-thru immediately before submitting an offer.

    User Stats

    10
    Posts
    15
    Votes
    David Braun
    15
    Votes |
    10
    Posts
    David Braun
    Replied
    Originally posted by @Adrie Moses-bailey:

    Unless 1) you have a lot of money, 2) you are buying so below market it doesn't matter or 3) you negotiate a very low deposit then I would not offer from day 1. I would think they are offered only once the PSA is signed by which time you should have the DD materials to know if you want to make an offer. Any reason you can't put a badboy carveout (fraud),title or environmental carveout into the EMD agreement?

    I am sure everything is able to be customized and exclusions/carveouts added. I need to discuss this with my attorney. Question is, what's acceptable... Thanks for chiming in!

    User Stats

    51
    Posts
    14
    Votes
    Adrie Moses-bailey
    • Miami, FL
    14
    Votes |
    51
    Posts
    Adrie Moses-bailey
    • Miami, FL
    Replied

    @David Braun, out of curiosity, are all the investors in your syndicate accredited? Wondering if they all need to be, I was just reading that the reporting requirements for having non-acc investors are so steep that it kills the benefit and am wondering if that is true from anyone with experience.