House buying - $4000 earnest money depost? Red flag?

[jtvang125]

I'm looking at this foreclosed property that I'm interested in. It'll need a little work but nothing major from the looks of it. It's sold as is. However the terms of the offer requires atleast a $4000 earnest money deposit. That seems way too much. I thought the norm is usually about a $1000. Is this high of an amount a red flag? I would hate to lose or have to legally fight to get this deposit back if anything happens during the process (besides me backing out).

 

[Turin39789]

Meh, as long as it is held by a trusted third party I think you are fine.

 

[KB]

That does seem very excessive; however I haven't bought foreclosed properties so I am not sure if it is high for that property. It is possible the person only wants serious offers and if you put that much coin out then you must be serious.

Do you have an agent? What did they think?

 

[HumblePie]

The point of earnest money is to show serious interest in making a purchase. It is not a requirement though. It all depends upon the seller. However, if the seller is really looking to sell, they aren't going to require that high of an earnest deposit unless they are running a scam. Most foreclosed properties I can think of would be in the category of really wanting to be sold though.

 

[brandonb]

Get a contract that says you can get it back in the case the loan is not approved, or contingent on a home inspection. Thats what I did when they required $2000 for my foreclosure. Contingent on a home inspection can mean anything. If you get an inspection and don't like the fact it has a drippy faucet, you can bail and get your money back.

 

[krunchykrome]

I'm looking at this foreclosed property that I'm interested in. It'll need a little work but nothing major from the looks of it. It's sold as is. However the terms of the offer requires atleast a $4000 earnest money deposit. That seems way too much. I thought the norm is usually about a $1000. Is this high of an amount a red flag? I would hate to lose or have to legally fight to get this deposit back if anything happens during the process (besides me backing out).

We put down a $10k+ earnest deposit on our house. It was new construction though; they wanted a deposit before they started building.

 

[HydroSqueegee]

they must really not want anyone to back out. Oo

 

[Demon-Xanth]

They're probably filtering out the random people and trying to go for a professional flipper who will get them cash fast.

 

[Vette73]

Also to add what others have said many people now "buy" the house without seeing it to hold it. Then they see it and judge if they can flip it, like it, etc...

1 house near my was "sold" the day it went for sale. Its still for sale and the price has come down. So someone said buy then backed out.

 

[s1175290]

I'm looking at this foreclosed property that I'm interested in. It'll need a little work but nothing major from the looks of it. It's sold as is. However the terms of the offer requires atleast a $4000 earnest money deposit. That seems way too much. I thought the norm is usually about a $1000. Is this high of an amount a red flag? I would hate to lose or have to legally fight to get this deposit back if anything happens during the process (besides me backing out).

It varies greatly depending on which part of the country you are talking about. One or two grand is typical in some areas, while 5% of the purchase price is the expected amount in other areas.

There is no reason to be concerned, provided you have a competent real estate attorney review the contract before you sign it and hand over $4,000.

 

[Capt Caveman]

Depends on where you live, here you need to put down a 5% deposit which goes into escrow.

 

[GoodRevrnd]

That does not seem excessive to me. How much is the house?

 

[wiredspider]

If you are worried about $4k, then it is not for you . Some foreclosures here will require 10% down.

 

[Aimster]

Mine was $5k......but I wouldn't give $5k to anyone. Do your research

 

[dr150]

Meh, as long as it is held by a trusted third party I think you are fine.

Bingo.

As long as it's held in a trust, as is the norm, the amount doesn't matter. usually it's 1-2% what I put down and the amount can influence the seller on multiple bids if it's a short sale.

I had one house, where the deal fell thru because where they wanted 10% down where IF the loan DIDN'T close in 90 days that the bank holding the property would KEEP my 10%. This is UNPRECEDENTED (in real estate norms) but it shows you what greedy banks are now doing to bury shit INTO the contract......so read EVERY WORD carefully!

 

[ProfJohn]

Is it heading to auction??

I was trying to buy a house right before it went to auction and they wanted an insane amount of money as earnest.

It seems that they were just trying to scare people off before it went to auction because the auction company gets nothing if you buy it the day before auction.

1. Talk to your agent, get one if you don't have one they are free for the buyer!

2. Be prepared to walk away unless it is an amazing house and an amazing deal.

3. It is a buyers market, keep looking until you find the house you want a price you like.

I ended up building a new house and am happy as can be. Everything is new and don't have to worry about my AC or heat dying tomorrow and I picked out pretty much ever thing in the house.

 

[Eos]

We bought our house in 2006 and gave the builders 1% earnest money. The house was already built and move-in ready.

 

[Crusty]

My earnest deposit was $5k...

 

[GoodRevrnd]

Bingo.

As long as it's held in a trust, as is the norm, the amount doesn't matter. usually it's 1-2% what I put down and the amount can influence the seller on multiple bids if it's a short sale.

I had one house, where the deal fell thru because where they wanted 10% down where IF the loan DIDN'T close in 90 days that the bank holding the property would KEEP my 10%. This is UNPRECEDENTED (in real estate norms) but it shows you what greedy banks are now doing to bury shit INTO the contract......so read EVERY WORD carefully!

The best part is they can pretty much guarantee it doesn't close in 90 days.

 

[GoPackGo]

Earnest money down and down payment have very little to do with each other. That is way too much money.

 

[Squisher]

When I was investigating foreclosures it did seem that a lot of houses that went to auction were sold for a higher amount than the original asking price. I know this is counter intuitive because the auction is further along in the process of the owner cutting the price to make it more sell-able, but I guess there is that whole auction fever thing going on. So, it is possible ProfJohn is right and auction house is trying to preserve the auction and get their cut.

Putting contingencies on offers for foreclosures is usually frowned on by the sellers. Here, in one of the foreclosure hotbeds sellers will usually accept the first full price offer that has no contingencies. However, it being a buyer's market you could counter offer for a lower earnest money deposit unless you feel there is some interest in other buyers who want this property too.

When I bought mine a year ago they only wanted $1K earnest money, but there were 4 other people touring the house the first day it went on the market. So, I gave a full price offer with no contingencies and heard that they accepted just a couple of hours later.

 

[alkemyst]

before all the flipping and crap, a 5% or so deposit wouldn't be that crazy to ask for. It stops people throwing down offers and then deposits on homes they have only intentions to buy one of.

 

[dabuddha]

I bought a foreclosure 1.5 years ago and had to put in a earnest money deposit. But in my case, I think it was like $300 or $500.