Seller wanting 20k earnest money for a 600k property is this reasonable? I do have 45days due diligence in the contract
Personally that sounds like too much. Earnest money, at least initially, is of no use to the seller. After the examination and financing period has ended, then the earnest money is their liquidated damages if you fail to show up to close. But until then, they can’t spend it and it’s not theirs to spend. So what’s it really accomplishing? If the seller is adamant, you could increase the earnest money at the end of the diligence and financing period – that tiny one week window or so. But if he’s just trying to see if you’re a real player, then just show him a proof of funds statement. Never put up more earnest money than you can afford to lose, and $20,000 is just too much for a deal of that size. Should be more like $5,000 or so.
It is a seller financed deal does that make a difference?
I’ve never really understood the value of earnest money anyway. The buyer can call the deal quits, get all his money back, and walk away. It could be five cents or five million. The only way the buyer loses it, and the seller gets it, is if the buyer walks away without canceling the deal and getting his money back. And if he does that, well, he’s an idiot and deserves to lose it. Am I missing anything here?
I’m in a due diligence period right now, with closing next Friday. The buyer put up $10k earnest money. To me it just has no impact on the deal. Wouldn’t have cared if it was $5. It’s partially seller financed, so far more important to me is his credit rating and experience/history running such a business. If he walks, he walks. I have zero thoughts of getting that $10k for free. I’d be amazed out of my mind if just he walked away and left it for me.
Now, if there were some kind of non-refundable earnest money, then that would be way different. THAT would show intent and commitment that would have real meaning. Until then…
I think a lot of times it is a show of good faith and that you would be a reputable buyer . And as stated, in theory , if everything goes right, its not as relevant. Its if a problem arises that the amount becomes more relevant and I think at the beginning of the transaction, on both ends ( most buyers and sellers) , do not enter it thinking there will be a problem.
@beckyg, as per your question:
- “Average earnest money?”
I am a Licensed South Carolina Real Estate Broker-In-Charge.
I agree with @frankrolfe:
“Personally that sounds like too much (earnest money).”
If I were the Buyer, I would put down “as little” Earnest Money as possible.
If I were the Seller, I would request “as much” Earnest Money as possible.
Yes, in an ideal world the Buyer would get all their Earnest Money back if they stopped the deal before the Contingencies expired.
However, this is not an ideal world and if the Seller decides that they want the Earnest Money and will not sign a release then the Earnest Money goes into a holding pattern until the issue is resolved.
As @frankrolfe suggested I would also agree to:
"…Increase the Earnest Money at the end of the diligence and financing period."
Also, as per @frankrolfe do the following:
"…show him a proof of funds statement."
We wish you the very best!
I always use 1% of purchase price as a good guide so on the 600k deal- 6k would be adequate. Just my take.