Seller Wants Earnest Money Deposit

[Blake Sanford]

Hello all, I am a wholesaler and I have come to an agreement with a motivated seller and this will be the first house that I have had under contract.  However, the seller has just informed me that they want $1,000 earnest money.  How can I avoid this?  Especially with me having serious buyers and feel as if I could move the property fast.

[Marcin Chojnacki]

If you can move the property fast then the earnest money shouldn't be a problem. Many sellers will want EM as it shows them that your financially invested in the deal and that if you simply waste their time they will be somewhat compensated.

If I were a seller I would NEVER not take EM. 

However here's how you as the wholesaler can be savvy about it:

1. Have an attorney add a section in the contract (if there isn't one already) that states that EM isn't due until 5 days (or longer if seller accepts) after contract acceptance. During these 5 days see if your buyers really are serious before submitting the funds. 

2. Do a 10 day attorney review period. During this period your attorney can cancel the contract for whatever reason as long as it is NOT based on purchase price. 

3. Ask the seller if they are open to EM of $500 instead of $1,000. This can save you $500.

4. Add contingencies to the contract to protect you. You can add, for the most part, whatever contingency you want as long as the seller/sellers attorney approves it. Many people add a "contingent upon my partner approving the deal". If your partner does not approve the deal then the contract gets canceled and you get your EM back. 

I am not an attorney (advise you talk with one) and this is what can be done in Illinois, Texas might be slightly different. 

Always be considerate of seller's time. Three months of being under contract and having the deal fall apart due to you not producing any qualified buyers will get under any seller's skin.