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Earnest money notes......

I have a listing I recently received an offer on and along with the offer was an "earnest money note" that stated by a certain date this buyer would hand over the $500. My seller agreed to accepting this note and we felt everything would go smoothly, after all it was a cash offer! The buyer sold his home and was using those proceeds to purchase this house.

I think we know where this is going....needless to say the day came that the money was due and the buyers agent calls to tell me the buyer had changed his mind and does not want the home. He cannot come up with the earnest money and he can't come up with $1500 that would have covered the rest of the homesale price. Basically this buyer made and offer on the assumption he would be able to come up with more money than he was getting. The agent then tells me he knows the buyer is supposed to hand over the earnest money but that he will not because he doesn't think he has to because he did not purchase the property! I of course have to give my seller the bad news.

Our predicament is it is only $500 so an attorney would probably charge more than that to cover his costs. So my seller loses out and that just doesn't seem right.

I have used these notes on a couple occasions and everything worked out fine, so that is why I was comfortable taking one........maybe I should have asked for more money to make it worth while? I guess it is another learning experience that I will have under my belt and be able to make it work for my sellers! Or maybe I will not accept them!

Posted by Maria Haun ABR, CNE on 06/24/2007 09:25 PM

Comments (15)

earnest money, earnest money notes, sellers

15 Comments on Earnest money notes......

JUN

2007

Sorry to say, but under no circumstances would I accept or advise my customer to accept a note for earnest money....no matter the amount. Your example is a perfect reason why not to do this. I am interested to hear what others have to say.

I do not advise my clients to accept offers unless the earnest moeny will be delievered in no less than 24 hours of acceptance date in the FORM of a cashier's or certified check. We have been burned on several bounced earnest money checks the bank charges fees for that transaction also......I hope this works out for you in a good way.

I have never seen a note used for earnest money. Your situation is a good reason not to accept one. On foreclosures requiring certified funds for the earnest money, we will write in the offer that the earnest money will be delivered upon acceptance of the offer to avoid unnecessary certified checks...changes in amounts, offers not accepted, etc.

I had never heard of an "earnest money note" until a few weeks ago. We use the Missouri Association of Realtors forms and there is no provision for such a "note." However, the Springfield (MO) BOR does have such a beast.

In this, my first introduction, the buyers were obtaining 100% financing. They offered an earnest money note instead of just putting down "zero" for earnest money. Their agent presented this in such a positive manner - like it's done every day! The buyer wanted no money out of pocket.

I wasn't comfortable with my seller accepting the note, but they did. The deal closed without a problem. but I was worried about collecting if it did not.

I think an earnest money note goes against the spirit of why we collect earnest money. I hope not to see too many of these, but as Jennifer said, I will continue to advise my clients not to accept such an agreement.

I agree, I always need the money. I feel sometimes I am being like a ole timer but it matters. that is the way it should be done therefore DO IT.

If you recommended against it and your clients still did it, you shouldn't feel too bad about it. Fund should be collected by certified check and go straight into the trust account. If the buyer doesn't even have $500 or $1000 is he really able to buy any real estate

My question is wasn't there a 5% clause in the P&S? Even if there was a low earnest down- there should have been a 5% clause so the sellers would still be able to have a leg to stand on.

I have never heard of using a note for earnest money. As a listing agent, I would not advise my client to pull a home off the market unless the earnest money was in hand in the form of certified funds like a cashiers check.

If some one can't come up with 500 earnest money they do not need to be buying a house anyway. I would never allow my clients to accept a note. Perhaps next time get something of equal value to hold as earnest money. Surely the purchaser has something of value

From my experience, at least in my area it is common to write an offer with a promissory note due within 3 days of mutual acceptance. Nearly every deal I've done has been with a promissory note for the earnest money and I've been selling real estate since 1993.

Sorry to hear what happened.. as you said you've used the notes before without any problems...

Just judge every situation and do what you think is best... it's the business and sometimes we win some other times we don't...

Good Luck

Maria, here in Kansas, we are required to have the earnest money turned in within 3-5 bus days. A contract can be written that states a earnest deposit will be presented upon acceptance of the contract, but the "show me the money" must be completed!

I'm sorry to hear what happened to you and your seller. I had never heard of an earnest money note before this post, but let me assure you, my broker has drilled it into our heads that if the buyer can't afford the earnest deposit, they can't afford the house. Hopefully, the next buyer will be serious and qualified.

JUL

2007

In most states unless there is some type of earnest money, the offer wouldn't be a contract

Thanks everyone for your comments! Believe me I will be very careful of these from now on! Probably will not accept them unless it is a much higher amount my sellers can fight for. The good news is we received another offer right away!

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