The House Buying Hack Nobody Talks About
Increase Your EMD To Let Sellers Know Your Serious and Make Your Offer Stand Out
1 Tip
Your Earnest Money Deposit - or EMD for short - is the money that you place into escrow once your offer is accepted. This deposit is what makes your offer binding, but it’s completely refundable per the terms of your Purchase Agreement. Furthermore, whatever you put forth as an EMD, will be deducted from the total amount of money you have to pay at closing. Traditionally, an EMD of 1 - 3% of the Purchase Price is customary. But in a highly competitive housing market, a larger EMD can set your offer apart from others and help you secure the wining bid.
Here’s How It Works:
Your dream home hits the market at an asking price of $400,000. You make a full-ask offer ($400,000). Because you know that this is a multiple-offer situation, you put forth a 5% EMD - $20,000. Not only does this potentially increase the odds of your offer being accepted, but it drastically reduces the remaining amount of money you will have to bring to the table at closing. If you choose to walk away from the deal, your entire EMD will be returned in full.
2 Ways to Put This Tip to Use
Secure the Winning Bid In A Multiple Offer Situation: A large earnest money deposit shows good faith and it helps build the trust of the seller. By increasing your EMD, your offer will stand out amongst other buyers that are going after the same property. As a result, you improve the odds of your offer getting accepted.
Lock In A Discount On An Investment Property: A large EMD also shows that you’re a serious buyer. If you have more skin in the game (a substantial earnest money deposit), the seller may be more inclined to accept a discounted offer. This is especially true when pursuing investment properties.
3 Things You Should Keep In Mind
A Large EMD Alone May Not Be Enough to Get Your Offer Accepted: There are two parts to an offer: Price and Terms. A large earnest money deposit makes the terms of your offer more attractive. But if the price and other components of your purchase proposal are lacking, the seller may not be inclined to accept your offer over others.
The key is to put together the highest and best overall offer; combining both great terms, and a strong purchase price.
The 3 Day Rule: Customarily, a buyer has three days from the date the offer is accepted, to place their earnest money deposit into escrow. If you fail to meet this deadline, your accepted offer is not valid and binding.
When you put forth your offer, be sure clarify with your Realtor all of the escrow information and wiring instructions so that you can submit your EMD without any issues.
The Devil’s In the Details: Your EMD is fully refundable per the terms and conditions of your offer. But if you fail to rescind your offer within the appropriate amount of time, or you attempt to exit the deal on grounds that are not stipulated within the purchase agreement, you may have a hard time recouping your EMD in full.
By fully understanding all of the contingencies and conditions throughout your offer, you can make sure that you don’t miss any important deadlines.
If you’re considering purchasing a home or adding an investment property to your portfolio, we’re here to help.