This is a common question from both buyers and sellers…

For Sellers…

The object is to get enough that it would be painful for the buyers to walk away without cause after the contingencies are settled.  For instance, $100 is obviously too low.  Just about anyone would be willing to walk away from that without too many worries.

But, what about $2,000? Well, if it is a $200,000 property, that might be a substantial amount, but for a $2,000,000 property, maybe not so much.

The bottom line is that you can ask for more if the amount offered isn’t realistic.  With VERY few exceptions, the buyer will need to put up a minimum of 3.5% as a down payment on the property in order to get financed.  The earnest money WILL be credited to them at closing, so 1% doesn’t seem that onerous… but some buyers may balk.

For Buyers…

Actually, I recommend the same amount in most cases.  There are some exceptions, but not many.  Keep this in mind, the idea is to make the seller comfortable with the transaction.  It IS part of the negotiating strategy.  And since the object of the buyer is to get the best price for the property, making the seller comfortable is a big part of that… and assuring the seller that the buyer will actually close WILL make the seller more comfortable.

I have had sellers ask for amounts that I thought were onerous for the buyers, but not that often.  Most agents don’t think about it until there is a problem.  But, the sellers generally DO think about it when they are looking at multiple offers, or they have EVER had a buyer fail to close.

In both cases we aren’t talking about failures because of inspection issues or other cause.

This specifically relates to contracts with contingencies released.  When there are hidden issues uncovered during the inspection, the buyer has a right to drop the contract (assuming it is written that way).  But if any financing and inspection contingencies are cleared, and the buyer backs out without a valid reason, the seller HAS been damaged.  The property has been removed from the market, and in many cases it is stigmatized… other buyers may assume that the reason for the failure was related to the property’s condition.

In that case, the seller should be compensated for their damage…

Also, remember that often the seller HAS the right to sue the (former) buyer for damages.  While we often assume that the the buyer is only on the hook for the earnest money, that isn’t actually the case… the buyer could be on the hook for more.

from LilburnDwellings

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