Ray, Quick question about earnest money deposit - Posted by Sarah

Posted by john bruno on August 27, 2004 at 18:59:47:

This is a commercial investing site?

“Also, as a commercial matter, sellers will like the buyer having earnest money at risk b/c that way the buyer has some skin in the game”

You are right…1 in 6 billion do real estate deals with no money as “consideration”…definitely not the “norm” in American commercial real estate transactions.

Actually, I don’t know a single commercial real estate attorney that would not want earnest money in the form of a cashier’s check.

May be different in some other parts of the country, but around here (Chicagoland), earnest money means cash or its equivalent.

Ray, Quick question about earnest money deposit - Posted by Sarah

Posted by Sarah on August 26, 2004 at 12:09:43:

Hello Ray and all,

My question has to do with earnest money deposits.

I am about to make an offer on a 30 unit building
and I want to be able to submit the offer without
actually giving earnest money. The seller has an
agent and I have a buyer’s agent.

How can I structure the offer so that I can make
it but at the same time not have to come out
of pocket with money I don’t have?



Re: earnest money deposit - Posted by ray@lcorn

Posted by ray@lcorn on August 28, 2004 at 12:38:55:


John brings up an important point, but I am unclear as to whether you just want to get an offer in without posting a deposit or if you’re trying to take the whole deal down with no money.

For the former, you can use a Letter of Intent that provides an unsecured note for any amount you choose as earnest money. The note terms are written to apply to the purchase price at closing. The contract would be structured for the deposit to not be at risk until the buyer accepts the due diligence.

For the latter, please read this article:

As an aside, my guess is that with two agents involved they are going to want to use a standard realtor contract. Don’t, period. That contract is not constructed for commercial property. You should have your own contract documents ready for use in any transaction.


Re: earnest money deposit - Posted by john bruno

Posted by john bruno on August 26, 2004 at 20:34:12:

You want to buy a 30 unit building and you don’t have any money for an earnest money deposit?

High school business law teaches you that in contracts, i.e., the real estate contract, there is an offer, acceptance and consideration. If you don’t give any earnest money, you have no contract.

Since I’m interested in learning something every day as I get older, I would be anxious to see your response to a question as to where you would expect to get financed for a project this size…with no money?

Actually, your earnest “money”… - Posted by Joe

Posted by Joe on August 27, 2004 at 10:30:07:

deposit can be anything of value including love or your 56 rust bucket.

However, in the real world most people want to see some cash. Once in awhile you find a deal where the seller is extremely motivated and will accept something like a note you created on your 56 rust bucket.

Every deal is different and you need to be able to figure out which one will take what.

Consideration - Posted by garrett

Posted by garrett on August 27, 2004 at 13:31:43:

Agree with Joe, disagree with John.

Consideration can be mutual promises to do something. No cash is required for consideration. As a legal matter that is. As a commercial matter, that’s up for negotiation. In this case, back to the legal matters, a perfectly binding contract could be created where the seller agrees - by signing the contract, etc. - to sell the property to the buyer and the buyer agrees - same - to buy the property from the seller on the terms and conditions of their agreement.

So - to answer the original poster’s question … I don’t know how you can structure your deal to avoid coming out of pocket with cash. But it is not legally necessary for you to put up earnest money to create a binding contract. So just propose something to your seller and see if you can talk your seller into agreeing to sell you the property without earnest money.

Recall that the purpose of earnest money is to protect the seller from the seller taking the property off the market or whatever while the buyer gets everything together to close the deal. Sellers frequently rely on the earnest money as a form of liquidated damages for a buyer that wants to walk away from a transaction in a way that is not sanctioned in the contract between the buyer and the seller. Also, as a commercial matter, sellers will like the buyer having earnest money at risk b/c that way the buyer has some skin in the game.


Re: Consideration - Posted by zoe

Posted by zoe on November 30, 2004 at 23:16:27:

Raymond owed Daniel HK400.Raymond knewDaniel was in financial difficulties and therefore offered to pay HK$350 in full settlement of the debt. Daniel accepted this cheque, but later sued Raymond for the balance.
Advise them of their legal position.