How Much Earnest Money Do I Need to Pay to Buy a Bank Property?

Q: Gerald, I saw a bank-owned property that I want to try to buy. How much earnest money do I need to pay to buy a bank property? Rich, Hazlet, NJ

A: That’s a great question, Rich.  Bank-owned property transactions also known as REOs (which stands for real estate owned) are often more intimidating for the uninitiated than typical real estate purchases.  There is no all-encompassing rule etched in stone when it comes to earnest money on REOs or any real estate transaction for that matter.

Let’s first identify the purpose of an earnest money deposit, which is to show a seller that a buyer is serious about purchasing a property. When the transaction is finalized, the earnest money deposit funds are applied toward the buyer’s purchase.  If the deal falls through, the buyer may not be able to reclaim the deposit if the earnest money deposit  was ‘non-refundable’, which is a potential cause of concern for investors like you and I.  A bank or any seller in a real estate transaction can try to bully you into doing almost anything, but remember that the buyer always decides the the final price and terms—-even in a so-called seller’s market, because, the buyer is the one with the money and because most things in this world are negotiable!  So, the key is to only make decisions with your money that you are comfortable with-otherwise you may unwittingly put yourself behind the 8 ball before the real negotiations have even begun.

Banks may try to intimidate you into making a non-refundable deposit or into making an exorbitantly high deposit but ultimately the choice is yours–never EVER cede control of your money to anyone else.  You can always walk away and buy another property at a better price with better terms.  Your money belongs to you, regardless of what the bank may try to demand from you.

Thanks for your question, Rich—-good luck!

For more real estate tips and information, visit my blog at geraldlucas.com.