Do I need earnest money deposit in NYC? - Posted by bob

Real Estate Investing Real Estate Law
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Posted by John Merchant on March 14, 2010 at 14:04:08:

Lots of legal contracts w/o any EM or cash being paid upfront.

But not a good idea as if/when the B takes a walk there’s nothing the jilted S can do about it except keep on looking for a good B.

One of the all time RE greats, Del Webb had a rep for doing exactly what Frank describes…supposedly actually showing up for closings involving $M or more and then producing cash for much less than the P&S agreement called for him to pay.

He was saying in effect “I dare you to try to make me pay 100% and this is all you’re getting” and I’m sure, often being the only game in town, he’d get by with it.

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Do I need earnest money deposit in NYC? - Posted by bob

Posted by bob on March 13, 2010 at 15:36:23:

I have always read that earnest money deposit is required to make a contract valid. However, I was checking some real estate contracts executed here in NYC where there was no earnest money deposit escrowed. An example, I saw a contract where the purchase price was $259k, $0 at signing of contract and $259k at closing. This is actually a real estate sales contract recorded in the county court. So, do I need earnest money deposit to get into contract?

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Re: Do I need earnest money deposit in NYC? - Posted by DJ-nyc

Posted by DJ-nyc on March 15, 2010 at 17:59:42:

No. However most Sellers want an earnest money deposit to judge your seriousness and keep them from totally wasting their time. Alot of jokers tie up a property with absolutely no clue, or resources to CLOSE. If you put an earnest money deposit with the chance that you will LOSE IT if you can’t perform; well that is more incentive to Get it Done; and the Seller will feel alot more comfortable with you tieing the house up. This is in an arms length transaction. A family or friendly sale may allow the no earnest money deposit. Just downpayment and closing costs if you are getting financed.
DJ-nyc

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Re: Do I need earnest money deposit in NYC? - Posted by Natalie-VA

Posted by Natalie-VA on March 15, 2010 at 16:18:58:

There is a lot of disagreement on this issue. IMO, Consideration is required to make a contract valid, but consideration and earnest money are not the same thing. So, in answer to your question, no, EM is not required.

–Natalie

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Re: Do I need earnest money deposit in NYC? - Posted by Frank Chin

Posted by Frank Chin on March 14, 2010 at 10:27:14:

Bob:

I’m a NYC investor, and there’s no LEGAL requirement, but few lawyers would recommend such a contract with a stranger. I’ve done such deals between family members, and if you happened to pull a contract like that, then there is no deposit involved, but have no idea why.

You cannot make conclusions based on a contract without knowing what negoitations that went into it.

The reason why lawyers recommend against it is the buyer can sign such a contract, then spend the next few months “shopping” for a cheaper but similar house in the area, then come back and tell you to lower your price even more. Usually, the deposit are the only damages entitled to be claimed by sellers, and with no deposit, there is little chance that a seller would go to court, spend money on lawyers and hope to collect something from you.

In this case, you can sign a contract to buy a place for $259K, meanwhile found a similar house for $219K, and come back and tell the seller to forget it, that you’re not going through with it. All he can do at this point is come after you wasted all his time is to try a sue you for wasting his time, with no mechanism for defining it, or collecting on it.

And because just about every buyer are told by realtors that a deposit is required, and your own lawyer gets very annoyed without one, I would have to go really out of the limb, and be a very desperate seller to go with such a deal, with strong chance of being scr&wed by the buyer.

I did buy a house to flip without a deposit, but the desperate seller needed someone to give him a small loan which I provided him right away. However, if you happened to pull that contract, you’ll see no deposit recorded without knowing that I did something else in place of the deposit. No where in the contract was there mention of the loan.

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Right! Jilted sellers don’t sue - Posted by John Merchant

Posted by John Merchant on March 14, 2010 at 14:05:24:

Lots of legal contracts w/o any EM or cash being paid upfront.

But not a good idea as if/when the B takes a walk there’s nothing the jilted S can do about it except keep on looking for a good B.

One of the all time RE greats, Del Webb had a rep for doing exactly what Frank describes…supposedly actually showing up for closings involving $M or more and then producing cash for much less than the P&S agreement called for him to pay.

He was saying in effect “I dare you to try to make me pay 100% and this is all you’re getting” and I’m sure, often being the only game in town, he’d get by with it.

As I’ve long said, it ain’t over until the B gets cash in hand.