Can someone go over my contract questions please

Question

I did a lot of searching, some things still dont make much sense since I am seeing a ton of misleading info.

I'd rather not post my contracts on here but write some things that are confusing me..

Some say you dont need an earnest deposit some say you do, some say you can just do a promissory note?

This is whats in my contract tell me if you think it should be changed, I tried looking up real estate laws for Delaware to see if I need an earnest dep, like what I can get away with to create a binding agreement but can't track it down maybe I'll have to contact a real estate attorney but then I'll have a ton of questions and will probably wind up paying for it.

A.  Earnest money deposit check [  ] or promissory note [  ], which will remain as a binder until closing, and be held for Seller by closing agent (chosen by Buyer) for Seller until closing, unless sooner forfeited or
returned, according to the provisions of this Agreement.	$_____________________

Is it even possible to put a promissory note as a binder in this instance because a promissory note has guideliness such as interest, amount to be paid and how long.  The contract just wants you to put an amount here which I dont think is right?  Guess I can track down the $$ amount in Delaware for an earnest deposit that would make a contract a binding agreement.

So I assume its a good idea to get an earnest deposit from my investor, especially if I haven't made deals with him before, Whatever that amount may be..im not real sure yet but all earnest deposits go to the title company correct and then theyre held in escrow? I wonder if they are small amounts like 20-50 bucks if they can just be given to one another as a check.. well thats the first question I had on my contract : ) thanks for all your time..

Jerry Puckett · Answer

Which do you think might be more expensive to you in the long run: $500 or your integrity and reputation?

My standard EMD is $100. I usually have a short inspection period as a contingency; if I can't generate any interest in that time, I can unwind the deal with no harm or foul.

But the best way to do business IMHO, is to have a buyer lined up before you make your offer. Spend some time building your buyer's list and you'll be able to negotiate with much more confidence. EMD will be just another detail, and not a sticking point.

Bill Gulley · Answer

An earnest money deposit is used not to make the contract legally binding as much as to show good faith and provide available funds to the seller in the event of default by the buyer. The seller is taking the property off the market in most cases and if the buyer fails to buy, the seller has a potential loss. It can also be be attached for expenses incurred by the seller, like real estate commissions if a buyer simply walks.

You can use a promissory note as an EMD, I have done so many times, but the circumsatances of the deal and your reputation as well as your ability to close will likely be consideredwhere you desire to use a note.

While it is customary, it is not required, if that is acceptable to a seller.

Jerry Puckett · Answer

Sorry, one last thing:

I also limit the sellers remedy to retention of the EMD:

15. DEFAULT: If Buyer fails to comply with this contract, Buyer will be in default, and Seller may, as Sellerâ€™s sole remedy, terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract.

That's part of the standard TREC (Texas) contract here; your state may be different, so always check with your attorney. Your title agent is another good source for contract info.

Jerry Puckett · Answer

O, BTW,

Here's an example of how I do a promissory note; I make it a part of the contract.

2.	Purchase Price:  Buyer agrees to pay Seller and Seller agrees to accept ($  _____________________________ ) Dollars Cash at closing. Buyer has paid to Seller an earnest money deposit of $ 500, in the form of a promissory note which shall be credited to Buyer at the closing of this Agreement. This paragraph shall represent a promissory note for earnest money payable upon the successful closing.  Seller shall pay all delinquent taxes and assessments that may hereafter become due on property at closing.

It becomes part of the closing instructions so there's no need for another document or a check.

Sean Gallagher · Answer

If I could get away with a 100.00 emd  thats no problem at all and I would rather deal with that other then a promissory note as good faith or consideration.

Financexaminer, I sent you an email, if you get a chance/have time please check it out for me, thanks!

Bill Gulley · Answer

Yes, it's deducted, but you need to be more confident than that as many standard contracts state that default can be 10% of the sale price, not just the EMD. Better read the contract and understand what the risks are. Good luck

Sean Gallagher · Answer

I thought most houses that are wholesaled usually aren't on the market?

After searching google for emd in delaware, i couldnt get a direct answer but 1% seems to be standard across the whole real estate community... So I cut a 500 dollar check on a 50k purchase, (contacting my title company first to see who to make it out to) I assume this gets deducted from the agreed purchase price.  Say 500 emd, amount due at closing 49500, total purchase 50k.

Not writing my own contract, just trying to understand these contracts I received to use..

So I guess I have to be very confident I will find a buyer because If something goes wrong and I dont close its pretty much, my 500.00 goes toward any fees the title company already put on and then probably what ever is left will go to the seller.

J Scott · Answer

Bill beat me to it...

An EM deposit isn't required, but is customary, and if you don't plan to give one, you should have a good explanation ready so that the seller doesn't get concerned.

Jimmy C. · Answer

I dont know bro.   Are you writing your own contracts?  I just use the state approved one here, even for wholesale deals.  Page 2 down here has an assignability section.  So in my case I would just check the box that says:  may assign and therefore be released from liability.

If I was dealing with a private seller (and I knew I could get a buyer), I would try to get my EMD negotiated to $100.  The cheapest you can go here in Florida is $10 I think.  But I already feel uncomfortable telling them $100, so I couldnt imagine saying $10 to someone for an EMD.

I would also make sure that my attorney is doing the closing.  More on that later.  Its Late!

Can someone go over my contract questions please

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