How Does Earnest Money Work?
When I read Greg blog on earnest money, it sounded like the rules are different all over, so I decided to re-blog this to see how many variations there are to this rule. In the Indiana contract, it states 2 business days, but that gives the buyers agent time to get it to the EM account of the Selling Company. How is it in your area.
How much time does a buyer have to deliver the earnest money?
I've heard and read all sorts of silly things like 24 to 48 hours. Unfortunately, there's no pre-typed time frame in our Texas real estate contracts, although a time period could be entered by perspective clients under the special provisions portion of the contract itself. Buyers in Texas have are given "reasonable time" to deliver the earnest money. In my opinion, that means within 2-4 days, tops. A buyer should deposit the earnest money as soon as possible. Point blank. If a buyer doesn't deliver earnest money within a reasonable time period they could be in default.
Why delay the earnest money to begin with?
Sometimes a buyer will fantasize about delivering the earnest money after everything has been negotiated & after all option periods have been exhausted. Sellers need buyers to have skin in the game. And they surely need that "skin" asap, not when it's convenient for the buyer. Title work doesn't begin until the earnest money has been delivered, so a buyer could be delaying the entire transaction.
There have been situations I've been involved with where the buyer’s agent didn't want to deliver the earnest money until the week before closing. Depending on the circumstances, a Realtor could lose their real estate license over such practices, especially if they are deliberately holding back the earnest money.
LLC's, Investors and Corporations who buy homes aren't blessed with special treatment. Sometimes these guys will offer a ridiculous amount of earnest money to strengthen their offer, say $40,000.00. What they won't tell you is that they won't deposit this earnest money until about a week or less before closing. When someone offers that kind of earnest money you should make sure they are required to perform, say within 72 hours. If they disagree, tell them to buzz off. You may be better off working with a buyer who isn't trying to shuck and jive the terms and conditions of what is arguably the largest financial transaction of your life.
Don't be fooled by exaggerated earnest money unless it can be immediately be accounted for. The same can be said for "cash offers."
Not all states have the same rules, laws and expectations with earnest money.
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