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Investing Strategies

Wholesaler Essentials: Protecting Your Earnest Money If Your Buyer Bails

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moneyHey Moguls, Steph Davis here…

Buyers bail. It happens.

My first piece of advice is... suck it up. And my second is… back that deal up. What I mean by that is always, always (did I mention “always”) protect your earnest money.

3 Strategies to Help You Prepare for the Worst

I get it, I really do…

You’re hesitant to make an offer and to put up deposits only to have your end buyer back out. I used to be nervous about getting bit in the butt too, but there are actually 3 simple solutions to protecting your earnest money – whether you’re dealing with a bank-owned property or a private seller.

  1. Never allow your end buyer to include contingencies in your offer... never.
  2. Always get earnest money deposits ($2,000 is my magic number, and I typically put down $1,000 when dealing with bank-owned properties).
  3. Choose to NOT put earnest money down.


It may be happy hour somewhere, but I promise you that third and last strategy was not dirty-martini induced.

Don’t Get Your Undies in a Bunch, Let Me Clarify

Do I encourage you to get earnest money upfront? Absolfreakinlutely. But do you ALWAYS have to put down earnest money? Heck to the no!

A best practice (for some) when buying a home from individual mom-and-pop sellers is to NOT give earnest money. Contrary to popular investor belief, you don’t have to put earnest money down on real estate contract to be considered “legit.”

You just have to cover your bases when it comes to consideration, and consideration can simply mean the contract itself. Explain to your seller that you deal with too many contracts to put thousands of dollars down on each one. It’s simply not practical or realistic. I’d bet big money your seller won’t bat an eye.

moneyIf you happen to be dealing with a particularly sophisticated (and perhaps stubborn) seller who insists that you too invest in the game, then you can have good contingencies in place for inspection, for example, to give yourself the ability to get out.

Let’s get hypothetical for a hot second, shall we? Say you got $2,000 from your end buyer and he/she backs out of the deal (major buzz kill, but it happens). As long as there are no contingencies in the contract, you get to keep the non-refundable earnest money deposit… and that doesn’t suck. No, it’s not as much as you would have brought in had the deal gone through, but it ain’t bad, folks.

You can establish that the contract is contingent upon final inspection by the buyer, the buyer’s partners and agents prior to closing. That will give you until the day of closing to back out if the deal no longer makes sense.

Bigger Is Better (Wink, Wink)

Remember to sell primarily to cash buyers, and if they’re making big bucks, they should be putting up a few “Gs” in an earnest money deposit, the more the better.

And look, if you’re still nervous about asking for earnest money, know that seasoned investors understand that it’s typically standard practice to give an earnest money deposit. They get it, so don’t sweat it!

Lemme Hear Ya


Do It To It! Immediate Action Steps

Don’t be afraid to ask for earnest money.

Do not allow their contingencies in the contract.

Get earnest money deposits – the bigger, the better.

Choose NOT to put earnest money down, but give yourself a contingency, so you can back out.

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