Posted by & filed under For Buyers, Las Vegas Real Estate.

Earnest money is defined as follows: “A sum of money paid by a buyer at the time of entering a contract to indicate the intention and ability of the buyer to carry out the contract.” Normally such earnest money is applied towards the purchase price. Often the contract provides for forfeiture of this sum if the buyer defaults.  If the deal falls through, the buyer may not be able to reclaim the deposit. Typically, if the seller defaults on the agreement, the earnest money will be returned to the buyer. When the buyer is responsible for defaulting on the offer, the seller will usually be awarded the money.

Why is earnest money important in a market of low inventory and multiple offers? Well it can give the listing agent and the seller some insight into a number of things: a) how serious is the buyer, b) how confident is the buyer, and c) how “able” is the buyer?  Let me explain. First, people always ask what is considered a “norm” for the amount of earnest money. While this can vary greatly, as a rule of thumb in Las Vegas I would say between 1%-2% of the sales price; depending on the nature of the home (REO vs. high end custom home) and the situation. Buyers hate to put their earnest money deposits “at risk,” and this is certainly understandable. However, there is a difference between putting it at risk and the old expression: “putting your money where your mouth is.”

Let me use the example of a “hot property” that just came on the market and has 6 offers in three days. Let’s say it’s a $200,000 property. In scanning the offers, I see earnest deposits ranging from $1,000 to $5,000.  So right off the bat, we can see who appears confident and who wants to show me they are “able.” Oh… 4 of the checks show the buyers name on the check, one is from a buyers “Mom.” Can you spell confidence? All the offers involve financing. So these deposits are only as good as the buyer’s ability to obtain a loan. If the financing contingency falls through, the deposit is refundable to the buyer, unless the contract called for other provisions. All of them tell me their buyers are “well qualified” and have no problems! Yet one steps up and tells me he is willing to make his earnest deposit non-refundable with three provisions: 1) the home has to appraise for what he agreed to pay and 2) the buyer has to approve of the home inspection within a specific time period and 3) the seller cannot breach the agreement (seller cannot default or fail to adhere to the agreement).   Now that’s somebody that means what they say! By the way, this scenario is essentially what all bank owned property (REO) counter offers require in a nutshell.

Another example: short sales. Due to the length of time involved with short sale approval, many buyers don’t want to “tie up” a larger sum of money while waiting for the approval. Therefore they will suggest a $1,000 or $2,000 deposit. I have seen this to be true even on a $300,000 to $400,000 home. How about taking a two stage approach?  Buyer agrees to place a $3,000 earnest deposit into escrow upon acceptance with the seller and within 48 hours of receiving written short sale approval, he agrees to increase the deposit to a total of $10,000! This can be very powerful for one big reason: the Seller and listing agent’s biggest fear is a buyer “walking away” once an approval is finally obtained. Here’s some real insurance that will not happen.

I am not advocating putting your Buyer clients at risk and there are ways to protect your clients in purchase agreements. However, “earnest” is all about showing deep sincerity. So when you want to distinguish your buyers from the pack…do just that! Show some real sincerity and let them know you really mean what you say!

3 Responses to “How to make a competitive offer on a Las Vegas Home (Part II: The Importance of Being Earnest)”

  1. Dorie

    hey there and thank you for your info – I’ve certainly picked up something new from right here. I did however expertise several technical points using this website, since I experienced to reload the site a lot of times previous to I could get it to load properly. I had been wondering if your web host is OK? Not that I am complaining, but sluggish loading instances times will very frequently affect your placement in google and could damage your high quality score if advertising and marketing with Adwords. Well I’m adding this
    RSS to my email and can look out for much more of your
    respective intriguing content. Ensure that you update this again soon.

    • Las Vegas Real Estate Agent

      Thanks Dorie for the note about the reload issues. I brought it to the attention of my webmaster and she couldn’t seem to find any issue but it does concern me. I appreciate you visiting my Blog and welcome any comments. Let me know if there is any particular topic that interests you; I’m always looking for the next topic to write about.

  2. car rental

    Aw, this was аn eхceptionally nice pοst.
    Taking a few minutes and аctual effort to рroduce a great article… but what сan I say… Ι hesitate a whole lot аnd ԁon’t seem to get nearly anything done.


Leave a Reply

Your email address will not be published. Required fields are marked *