Home Buying in Dallas>Question Details

Srlinley, Home Buyer in Dallas, TX

DO you have to put up money when you sign a contract.?

Asked by Srlinley, Dallas, TX Thu Feb 24, 2011

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No you don't, the reason for earnest money is to show the seller that you are for real and mean to buy the property. Put yourself in the sellers shoes which contract would you accept, the one with a $1000 ernest money or the one without a cent. If you really want the property the amount you put down will tell your seller your intent and make things flow a lot smoother. I personally have put down as much as $8000 on a $140000 home, reason that it was a good home for the price and I wanted to be the one that made the impression to the seller that I had the money to buy. Don't be afraid to put down money, your Realtor should tell you how much and if it is refundable if the deal doesn't go through. Trust in your Realtor.
1 vote Thank Flag Link Fri Feb 25, 2011
Not in Florida. To have a contract the parties must have an offer and acceptance. If buyer offers with no earnest money and seller accepts, you have a contract.
1 vote Thank Flag Link Thu Feb 24, 2011
Earnest Money is NOT required for a valid contract in Texas. Below information was taken directly from the State of Texas web site. (Please note last sentence.)


The essential elements necessary to form a binding contract are usually described as:

1. An Offer
2. An Acceptance in strict compliance with the terms of the offer
3. Legal Purpose/Objective
4. Mutuality of Obligation – also known as the “meeting of the minds”
5. Consideration
6. Competent Parties

Consideration is an essential element of any valid contracti Consideration consists of either a benefit to the promisor or a detriment to the promisee. It is a present exchange bargained for in return for a promise. It may consist of some right, interest, profit, or benefit that accrues to one party, or alternatively, of some forbearance, loss or responsibility that is undertaken or incurred by the other party. It is not necessary for a contract to be supported by a monetary consideration.
Web Reference: http://www.phgbrokers.com
1 vote Thank Flag Link Thu Feb 24, 2011
Nope. It is negotiable between the parties. I often buy homes with no earnest money deposited. It's not a legal requirement either...just customary to do so.
Web Reference: http://www.phgbrokers.com
1 vote Thank Flag Link Thu Feb 24, 2011
As the other agents have pointed out there must be consideration given. In the contract there is a place for Earnest money and option fee. The option period (paid for by the option fee) gives you time to get inspections done and have your earnest money returned for any reason during that time. To be taken as a serious offer any good agent will advise you to put down earnest money and make sure that you are protected.
Web Reference: http://dmdrealtydfw.com
0 votes Thank Flag Link Tue Mar 8, 2011
Not legally required in Ohio, but, if I am advising a client on an offer that is not accompanied by Earnest Money, I question the financial strength of the buyer. If the buyer has no cash flow, then the entire burden of the transaction is on the seller (who in most cases is already paying the real estate commission).The seller will be asked to pay closing costs, any and all repairs that are required by inspections, etc. That buyer may not be able to perform in the end because their financial position may change from paycheck to paycheck. Definitely not fun for a seller to pack and move out, only to find that the buyer has spent the down-payment money, or made a major credit purchase before closing since they have no other source of cash.
0 votes Thank Flag Link Wed Mar 2, 2011
Talk with a lender, not when you sign but when you close you will need a down payment but really, that is the lenders department. Have you served in our Military then you could do a VA option.

Best of luck.

Spirit
0 votes Thank Flag Link Fri Feb 25, 2011
I like Onyx reply because he is so right!

Don't be afraid to put down money, your Realtor should tell you how much and if it is refundable if the deal doesn't go through.

During the option period if you terminate it's automatic refund of earnest money. After that it gets a little more complicated and your agent can explain it all to you.

Good luck!
0 votes Thank Flag Link Fri Feb 25, 2011
I think you are talking about earnest money. That depends on the negotiation in CA. However, in reality, we do in CA but not when I sign a contract.

This question is too general. You have better to provide more details or narrow it. Otherwise, you may just get some general answers only.

Andy
0 votes Thank Flag Link Thu Feb 24, 2011
Yes, also to show that you are sincere about wanting the house you're making an offer on. Also the more of the earnest money you provide the more serious the offer and sincere interest. Also I'd suggest, the more the house is, the more you should put up.
0 votes Thank Flag Link Thu Feb 24, 2011
If you listen to the "independent" minded people you may find that you are rubbing the seller the wrong way and find that seller less interested in your offer. YOU REALLY DO want the seller to take your interest and offer seriously, RIGHT? Then put up reasonable earnest money with the title company, 1% is the norm here in the Dallas metro area.
0 votes Thank Flag Link Thu Feb 24, 2011
The State of Texas promulgated contract as approved by the state legislature has a place for the amount of "earnest money" and that is the money you put up at the signing of the contract.
0 votes Thank Flag Link Thu Feb 24, 2011
Buying a home is a complex procedure, but one that can be a win-win for both the buyer and the seller. In order to show your serious interest in purchasing a home, one should put a reasonable amount down as 'Earnest' money. Do you have to do so? No. But it is not a serious buyer that doesn't want to show his 'skin in the game'.

In real estate as in just about everything else when it comes to dealing with people, it's alway a good rule to follow... Treat others as if you would like to be treated. I like to think that way, and I think most everyone does as well.

Hope this helps, and best wishes to you.
0 votes Thank Flag Link Thu Feb 24, 2011
Your question was not "should you" offer earnest money, it was "do you have to" offer earnest money. You now know it's not required.

Should you offer earnest money? That depends on the seller's motivation. I purchased 3 homes last year and one so far this year and I didn't receipt earnest money on any of them. Clearly those sellers took me serious.

I will say that if an agent has listed the home that you wish to purchase, your chances of convincing the seller's agent of your seriousness (regardless of earnest money) may be difficult. I don't typically buy homes where agents are involved as our industry is not known for thinking left or right of what the way they've always done things and ultimately hampers the process. If the home you wish to purchase is not listed with a brokerage, your chances are much greater for receipting a contract without earnest money. Not offering earnest money has become my standard operating procedure these days and the seller's I purchase from don't even balk about it.

While not offering up earnest money may not be the norm for most real estate transactions, you might just be surprised at what a motivated seller will do. You'll NEVER get what you want if you don't ask for it.
Web Reference: http://www.phgbrokers.com
0 votes Thank Flag Link Thu Feb 24, 2011
Where it may not be required to put up money I do not know any seller's or agents who would take such an offer seriously. Once the contract is executed typically the buyer will deposit earnest money with a title company and also pay an option fee to give the necessary time to have an inspection and work out any details that may arise during the inspection.

Without a serious offer including earnest money I would find it hard for me to recommend to my client to take their home off the market. If you are not ready to put up earnest money you are not really ready to make an offer. I would find a knowledgeable agent in your area and let them explain the process in greater detail to you. It's important that you understand the process and how things transpire.

Good luck to you.
0 votes Thank Flag Link Thu Feb 24, 2011
Jim is correct. In the state of Texas in order for a contract to be considered valid, there has to be "consideration given." As Jim stated, this could be as little as $1 if the parties agreed. As far as an option period, it also states that there has to be consideration given, so once again as little as $1.

I doubt you will find someone willing to do this, however. In Texas Real Estate, the customary earnest money is 1% of the contract price. (If your offer is 100k, then the customary earnest money deposit is 1%, or $1,000). It is important to note that when the contract goes to closing, earnest money is considered a part of your down payment, so it is not lost.

The reasoning behind this is to show that you are a serious buyer. If you were to back out of the contract for a reason that was not explicitly stated in the contract, then you forfeit that money as consideration for the seller's time and marketability of the home. If you only put up $1 or even $100 on a $100k home, then what makes a seller think that you are serious about buying their home? In addition to this, it will make the seller think "If this person doesn't have $1000 to put down as earnest money, do they really have enough for the down payment? Can they really afford this home? Is it worth my time to take my home off the market to deal with this contract if they aren't serious enough to put up 1%?"

There are always exceptions to the norm though, and that would be something to discuss with your real estate agent.

Because it's more than real estate. It's RAYL-Estate!

Brian Rayl, REALTOR®, e-PRO
Keller Williams Elite - Dallas Park Cities
972-949-4222
Brian@Rayl-Estate.com
http://BrianRayl.com
Web Reference: http://brianrayl.com
0 votes Thank Flag Link Thu Feb 24, 2011
you may not have to, but if you want the seller to take your offer seriously, then it definitely is a good idea. All depends on how you write the offer.
0 votes Thank Flag Link Thu Feb 24, 2011
Typically yes..... there needs to be consideration for it to be a contract.
In most cases that would be money.

On normal real estate transactions you will put up option and earnest money.
Option money is non-refundable. Earnest money is your "I'm serious" about buying the property money.
This may or may not be refundable depending on at what point you either finish or terminate the contract.

Bruce Lynn
0 votes Thank Flag Link Thu Feb 24, 2011
Bruce Lynn, Real Estate Pro in Coppell, TX
MVP'08
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It has been my experience and certainly confirm with your attorney as I don't practice law but am a licensed realtor, that when both parties agree on all the terms of the contract and sign and execute it, as the buyers agent I deliver the executed and signed contract to the title co along with the buyers earnest money check and option fee check.

Hope this helps!
0 votes Thank Flag Link Thu Feb 24, 2011
A great question for your attorney!

I have been told that for the contract to be binding there must be "consideration" in the form of earnest money. That could be $1 if the parties agree to it. The option fee, as previously noted, would only be required if the buyer wanted and the seller granted an option. In this case, some form of consideration would be requiredas well as agreed by the parties.

On the other hand, I also understand that a contract is not necessary to purchase. In that case the "binding" part wouldn't matter. I guess one of the parties would just tell the title company how to set up the closing and as long as the other party agreed, everyone could sign. Of course if there were a lender, they might not be to wild about that and the buyer and/or seller might be out some expenses only to find out that they couldn't agree about how the closing was to be handled.

Were it me, I'd talk with my attorney before betting on any of this!
0 votes Thank Flag Link Thu Feb 24, 2011
Yes you definitely have to make an escrow deposit.
0 votes Thank Flag Link Thu Feb 24, 2011
It is best to do so to show the seller that you are a serious and a qualified buyer and are taking the contract terms seriously. If another offer came in with more earnest money (deposit) it will be a stronger offer than yours and most likely the seller will take the stronger offer. It also states in the contract to have an option period you have to give consideration (money) to the seller to have the right to exit the contract during the option period. Good luck and I hope this helps.
0 votes Thank Flag Link Thu Feb 24, 2011
Hi Srlinley,

In Texas earnest money is typically due when all parties have come to an agreement and the contract is executed. An option fee is due if you and the seller agree to an option period. Downpayment is due at closing. You need to ask your agent to explain each of these!

Good luck!
Andrea Brooks
0 votes Thank Flag Link Thu Feb 24, 2011
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