This post on earnest money is based on a section from The Book on Rental Property Investing. If you are reading this post, you really should probably pick up a copy of that book. When you join the mob, they likely will ask you to kill someone, just to make sure are serious and not wasting their time. In real estate, people also hate to have their time wasted.

The earnest money deposit, also known as a good faith deposit or simply earnest money, is money provided by the buyer when an offer is submitted as a way of showing the seriousness of the offer.

The earnest money is pledged, and should the buyer not fulfill his end of the contract, the seller can keep the money. So yes, you can lose your earnest money! Here at BiggerPockets, we believe that self-education is one of the most critical parts of long-term success, in business and in life, of course.

This list, compiled by the real estate experts at BiggerPockets, contains 20 of the best books to help you jumpstart your real estate career. Click Here For Your Free eBook! The amount of earnest money supplied depends greatly on the price of the property and the person from whom you are buying the property.

Where do you come up with all that earnest money? You see, this question is based on a false belief that earnest money is given when the offer is made.

However, in most cases, the earnest money is not given until AFTER the offer has been accepted. So, I can make 20 offers in a month, but if only two of those get accepted, then I only have to pay earnest money on two of them.

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The One Thing All Experienced Investors Know to Be True And All Newbies Will Learn! Instead, this money is usually held by a third party, most likely the title company or attorney who is handling the closing.

This ensures that the rules that govern what happens to the earnest money are followed. This is most commonly done when the contract has been accepted and signed by both parties, not before. If you are working with a real estate agent, your agent will mostly likely tell you when and where to drop off the earnest money check. So what exactly is the earnest money used for?

What ultimately happens to it? There are three possible scenarios that could play out, depending on how the deal is done or not done. Most contracts, real estate or otherwise, contain certain provisions that outline conditions in which the contract could be terminated.

These are legal loopholes that allow you to not follow through on your contract, should one of those contingencies happen to occur. Technically, you could have contingencies for anything you can think of. Of course, these are absurd examples meant only to illustrate what a contingency is. First, understand that the more contingencies you put in your offer, the more leery a seller will be to accept it.

If someone offered to buy your home but only if 50 little contingencies happened, would you feel comfortable accepting? If I was competing with numerous other people for a property, I might include far fewer contingencies than I would if I were offering on a deal with no competition.

You can only learn so much about a property by walking through it on a quick tour. On residential homes, a day inspection contingency is most common. This means that after 10 days, the contingency is no longer applicable. Inspection contingencies are very common in real estate contracts, but some experienced investors do choose to waive this contingency, opting instead to take the risk that nothing unforeseen will come up in the inspection. If it does and they have to back out because of it, they could lose their earnest money.

Other investors, including me, often designate much shorter inspection periods often as brief as three days , knowing that this will still allow time to get in and get the property looked at in detail, but it will look better than those who need ten days. Of course, you need to know that you can get it inspected in this timeframe.

Often, professional inspectors are booked out several days in advance and take a couple of days to get the report to you. The Ultimate Guide to Purchasing Your First Property. What would happen if you tried to buy a property but at the last minute, you found out that your financing had fallen through? The financing contingency allows a buyer to back out and to keep their earnest money should the buyer not be able to obtain a loan.

Of course, if you are paying cash for a house, you will have no need for a financing contingency, and your offer will likely look much stronger to the seller. Some investors choose to avoid using the financing contingency, even if they are using a loan. Of course, if you choose to waive the financing contingency but still plan to use a loan, this can increase your risk of losing that earnest money should something go wrong with your financing.

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than , people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of " The Book on Investing in Real Estate with No and Low Money Down ", and " The Book on Rental Property Investing " which you should probably read if you want to do more deals.

One thing I would like to ad would be that investors must not over simplify the process of getting their earnest money back. It is not always as black and white, there are some very gray scenarios that could occur.

The following statements from the article are in essence how it should work in theory but not always in actual practice. If the sale does not go through and the buyer does not have a legal reason to back out, then the deposit is forfeited to the seller, and the seller receives the deposit. If the sale does not go through and the buyer does have a legal reason to back out, the deposit is returned to the buyer.

For a real estate broker or title company to release the earnest money that is held in their trust account both the buyer and the seller need to sign off on the release and specify who it is to be released to. Sometimes a buyer backs out for a reason that they consider justified by the contingencies in the contract but the seller does not feel the same. Things in the inspection report can sometimes be viewed differently from either side.

The buyer may choose to cancel a deal after a crack in the foundation wall is flagged by the general home inspector as dangerous. The seller on the other hand may argue that the crack was clear and apparent.

Usually purchase agreements with inspection contingencies are written in a way that only things that are not already clear and apparent are cause to cancel the contract.

Who is right in this scenario as both buyer and seller feel they should get the earnest money? If they cannot come to an agreement on their own and sign a mutual release the real estate broker or title company could not legally release the earnest money until one of the parties sued and the judge ruled who would get the money.

Buyers need to understand that getting back your earnest money, even if a buyer followed the contract to the letter may not always be a simple process. Sometimes the cost to litigate may be even more than the earnest money was in the first place.

In short, if someone wants to write an offer and put up earnest money they should be very serious about closing the deal. The time to kick the tires or think things over is PRIOR to writing an offer and putting up a deposit as getting it back might not be a black and white process. Hi Brandon, Just wanted to know how you knew so much about the mob initiation requirements?

Minnesota Residential Real Estate Purchase Agreements - Earnest Money - Gary C. Dahle, Attorney at Law

I heard that they like to keep this kind of thing quiet. This is a wholesaling technique that may bear some merit. You have so many great ideas and advice just not sure of your sources. There is something I need to share with you there… come alone. If the seller goes MIA, such as in a short sale, you might not be getting your EM back.

What do you do when you get more offers accepted than you have earnest money to fund? Notify me of follow-up comments by email. Notify me of new posts by email. Blog Categories Home Starting Out Landlording Flipping Wholesaling Management Finance Commercial Real Estate News Real Estate Marketing Mortgages Investor Stories Podcast. The 20 Best Books for Aspiring Real Estate Investors! Free eBook from BiggerPockets! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today!

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June 19, June 15, June 10, 6. James Wise on May 1, 4: Dan White on May 1, 9: Brandon Turner on May 2, Cheryl Crockett on May 2, Thats a good problem to have Cheryl!

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