Keeping Track of the Earnest Money Deposit and Why You Should Care

"Is the Earnest Money Deposit (EMD) in or not" is a simple question.  Yet it is of huge importance to doing real estate deals efficiently and without encountering major problems in your deals.  While many Purchase and Sale Agreements (Contracts) stipulate that the Earnest Money Deposit be in the hands of the escrow agent for the contract to be valid, that doesn't mean it happens all the time.

If you are dealing with real estate agents you'll find out quickly that the most experienced ones will be crazy about getting your EMD into the hands of their escrow agent. Even if their escrow agent is different from the closing agent, they want the EMD in as quickly as possible to know you are "sincere" about your purchase.  If the agent insists on a large EMD of 5% to 10% of the purchase price, try offering $1,000 to start.  Then if you must, offer the rest of the larger amount AFTER the inspection period is over.

My mentor Students generally do one of three things.  First they put up the deposit as required but only if they truly believe they can get a discount before the inspection period is over.  Second, they use a single EMD with their chosen escrow agent who gives them a EMD deposit letter to use with multiple deals.  The last option is they dodge the issue as long as possible while they try to find a buyer for their wholesale deals.   Dodging the issue is more common than most investors think.  It is a "normal" wholesale tactic used by the same investors who may be buying your deals.

The process for these guys who "skirt" the issue is to send the seller a signed contract.  Sometimes they even send a copy of the cashier's check made out to the escrow agent as required by the seller.  The signed contract is sent to the closing agent but the cashier's check is returned to the bank it came from and deposited back into the buyer's account.

The trusting seller now moves toward the closing anticipating the deal will close.  If the buyer doesn't cancel during the inspection period, the seller believes even more wholeheartedly that the closing will happen.

Sometime just before closing the buyer informs the seller that he needs a discount to close.  If the seller is unwilling, the buyer cancels and the seller thinks he is getting the Earnest Money Deposit.  But there never was an EMD so the seller must now sue the prospective buyer for "Breach of Contract" to get the money.  Seldom does the amount of the EMD warrant suing the buyer.  The only winner will likely be the buyer's and seller's attorneys.

To control your deal you need to control the sales agreement by using the proper contract clauses and having the EMD actually in the hands of your escrow agent and preferably not the buyer's escrow agent.  To make sure you actually get the EMD if the buyer defaults, you'll need a clause that states the EMD is forfeited irrevocably if the buyer doesn't close timely.  In addition, the clause should say that the closing agent is indemnified if he releases the EMD to either the seller or the buyer.

In summary, always try to control the Earnest Money Deposit from your buyers and get as much as possible.  If you are doing a double closing (A – B and then a B – C) you should ALWAYS get more EMD from your buyer than you give your seller.  If your buyer defaults and you can't find another buyer in time to close, you can still make money by getting his larger EMD and losing your smaller EMD.

change your life mentoring click button j 300x236 1

To your limitless success,

Dave Dinkel
Real Estate Mentor Program Founder

Visit davedinkel.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at davedinkel.com if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.

Keeping Track of the Earnest Money Deposit and Why You Should Care

"Is the Earnest Money Deposit (EMD) in or not" is a simple question.  Yet it is of huge importance to doing real estate deals efficiently and without encountering major problems in your deals.  While many Purchase and Sale Agreements (Contracts) stipulate that the Earnest Money Deposit be in the hands of the escrow agent for the contract to be valid, that doesn't mean it happens all the time.

If you are dealing with real estate agents you'll find out quickly that the most experienced ones will be crazy about getting your EMD into the hands of their escrow agent. Even if their escrow agent is different from the closing agent, they want the EMD in as quickly as possible to know you are "sincere" about your purchase.  If the agent insists on a large EMD of 5% to 10% of the purchase price, try offering $1,000 to start.  Then if you must, offer the rest of the larger amount AFTER the inspection period is over.

My mentor Students generally do one of three things.  First they put up the deposit as required but only if they truly believe they can get a discount before the inspection period is over.  Second, they use a single EMD with their chosen escrow agent who gives them a EMD deposit letter to use with multiple deals.  The last option is they dodge the issue as long as possible while they try to find a buyer for their wholesale deals.   Dodging the issue is more common than most investors think.  It is a "normal" wholesale tactic used by the same investors who may be buying your deals.

The process for these guys who "skirt" the issue is to send the seller a signed contract.  Sometimes they even send a copy of the cashier's check made out to the escrow agent as required by the seller.  The signed contract is sent to the closing agent but the cashier's check is returned to the bank it came from and deposited back into the buyer's account.

The trusting seller now moves toward the closing anticipating the deal will close.  If the buyer doesn't cancel during the inspection period, the seller believes even more wholeheartedly that the closing will happen.

Sometime just before closing the buyer informs the seller that he needs a discount to close.  If the seller is unwilling, the buyer cancels and the seller thinks he is getting the Earnest Money Deposit.  But there never was an EMD so the seller must now sue the prospective buyer for "Breach of Contract" to get the money.  Seldom does the amount of the EMD warrant suing the buyer.  The only winner will likely be the buyer's and seller's attorneys.

To control your deal you need to control the sales agreement by using the proper contract clauses and having the EMD actually in the hands of your escrow agent and preferably not the buyer's escrow agent.  To make sure you actually get the EMD if the buyer defaults, you'll need a clause that states the EMD is forfeited irrevocably if the buyer doesn't close timely.  In addition, the clause should say that the closing agent is indemnified if he releases the EMD to either the seller or the buyer.

In summary, always try to control the Earnest Money Deposit from your buyers and get as much as possible.  If you are doing a double closing (A – B and then a B – C) you should ALWAYS get more EMD from your buyer than you give your seller.  If your buyer defaults and you can't find another buyer in time to close, you can still make money by getting his larger EMD and losing your smaller EMD.

change your life mentoring click button j 300x236 1

To your limitless success,

Dave Dinkel
Real Estate Mentor Program Founder

Frequently Asked Questions

1. What Should I Do If a Seller Ghosts Me?

If you feel you have been ghosted, act decisively and quickly. If you have tried texting and calling, it's time to drive by the seller's location. I always take the recorded Notice of Interest or Memorandum of Contract to leave, so the seller knows it exists. Go by at a time when you know they will be there and don't be confrontational, just get the facts.

In our experience with new investors, the chances of losing a deal with no contract is likely over 85%. Verbal commitments do not apply in contract law; get everything in writing, especially contract changes.

Different 'gurus' have different opinions, but our experience is finding motivated sellers and then a buyer for your deal. Ideally, you should be finding motivated buyers from day one, so you are ready when you find a seller. Buyers are easier to find as you can see at https://davedinkel.com/products/

Prevention only comes about by thinking a Black Hat wholesaler will be coming after your deal. First, educate the seller that an unscrupulous investor may come by and illegally offer more money, have the seller sign your "Notice to Homeowner," stating that he understands he cannot accept another offer.

There is nothing illegal about changing their mind, it is called seller remorse and occurs about 25% of the time. However, if they have signed your contract, it can't be cancelled for any reason unless acceptable to the investor/buyer.

If price is an objection, you need to find out how important it is to sell fast and for cash. If the seller isn't under a time constraint, has a money issue, or has a personal dilemma, he may not agree to the price you need. Offer to help move and build it into your price before you make your offer. However, never give the seller money; only pay the moving company, and only after closing (escrow with a closing agent). If fear is the seller's issue, break it down into what the real problem is and answer their objections one at a time.

You can get to the root of motivation for a seller by asking a few questions. First, "Why are you selling?", "How soon can you close?", and Are you ready to sign an AGREEMENT today, if not, what do I have to do to make you comfortable?'. The answers to these questions will determine the truth about your seller's motivations.

The best times to involve your attorney in your deals are to have him review your contracting, review the signed contracts from the seller and end buyer, have him open escrow and start the title work, negotiate with city or counties for lien reductions or mortgage payoffs with lenders, and to close the transactions." Your attorney is not the adversary; it's the opposing party's attorney who is a deal killer, and having your attorney allows him to help overcome this obstacle.

The key to successful prospecting and bringing back deals that didn't close is to follow up until the property is transferred in the public record. Some of our deals have been where the seller came back to us months and years later because they felt comfortable with us and not the other "pushy" investors who contacted them.

Your contract's most important clauses are inspection period (as long as possible), when the EMD must be deposited if at all, your ability to access the property, any added clauses specific to the property that will protect you against seller claims later that were verbal only.

Visit davedinkel.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at davedinkel.com if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.