Earnest money on off-market deals

What it is for

Earnest money is the deposit that makes your offer mean something. On a retail purchase it is one to three per cent. On off-market and assigned deals it is usually a flat number - a thousand to five thousand dollars is the common range, and on a small house it can be less.

Where it should sit

With the title company or the closing attorney, in escrow, and nowhere else. Not with the wholesaler. Not in somebody's business account to be applied later. If the request is to send it anywhere other than a licensed escrow holder, that on its own is a reason to stop and ask more questions.

Going hard

“Hard” money is non-refundable: once the date passes, the deposit is the seller's whether you close or not. On off-market deals you will often be asked to go hard quickly, sometimes immediately, because the seller wants certainty. That is a real trade, not a trick - but never go hard on a property you have not walked and a title search you have not seen.

How people lose it

Missing the closing date because funding was not actually ready. Blowing through an inspection period without giving written notice, because verbal notice is not notice. Assuming a contingency exists that the contract does not contain. In nearly every case the deposit was lost on a date, not on a disagreement.

Ask one question before you wire

Who is holding it, and what exactly gets it back. If the answer is not a named escrow holder and a clause you can point at, you do not have an answer yet.

Wire fraud is the real risk

The most common way money disappears in this business is not a bad deal. It is a spoofed email changing the wire instructions at the last minute, sent from an address one character different from the one you have been reading all week. Call the title company on a number you looked up yourself, never the number in the email, and confirm the account before sending. Do it every single time, including with people you have already closed with.

A bigger deposit buys something

A larger deposit, or going hard sooner, is leverage. It can win a deal against a competing offer and it can buy you a better price, because certainty is worth real money to a seller who has been let down before. Just price the risk honestly before you offer it: that money is gone if you cannot perform, and cannot perform includes reasons that turn out to be nobody's fault.