Profile picture for robert washburn

Earnest monies

We are selling our home for $1,275,000. The couple who want to buy it can't qualify now because he just went onto a 1099 form for last year taxes. They want to rent our home until they have another years record the 1099. They are putting down $100,000. Deposit and renting with option to buy. We need monies to get into our new home. My question is what if they decide a couple months down the road they want to back out. Do we keep the earnest monies since we have taken our home off the market, turned down other offers and signed contracts to have a new home built ?
  • July 26 - Los Angeles
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Answers (9)

Well, WD, that's probably not enforceable.
  • July 27
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Profile picture for wetdawgs
If you have many qualified buyers interested in your home, why do you want to play nice guy?

With a 1.3 million dollar home, I'd ask for a 20 to 30 % non-refundable "earnest money".    Work with your attorney to structure the agreement.   In addition, with monthly rent, only the amount above fair market rent goes towards the purchase price.

Chance are very good (no matter what story you've been told) that in 2 months or a year or whatever, you'll have your current home back on the market.  Heck, it could be trashed at that point.  Do you really want to do that to yourself?
  • July 27
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You can't trust our advice, Robert - you need to seek local counsel and find an attorney that will defend their advice on your behalf.

All the best,
  • July 27
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Robert, Any of the reputable real estate professionals on this forum and in your local area currently know many qualified buyers seeking properties who are eager to purchase now due to the low inventory of available homes for sale. While my heart goes out to the buyers who hope to eventually purchase your home, as my colleagues have pointed out, there is just so much that can go awry in lease with option to buy scenario. Contact a local agent asap. The market has evolved into a sellers' market with inventory lower than buyer demand. Any well-price home in a desirable area in good condition should sell fairly quickly with the help of your agent. Best of luck!
  • July 27
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Profile picture for KevinDibben
All of the previous comments are very valid, do not enter into this transaction without professional representation. The Deposit is usually refundable however if they are getting an Option to purchase your home they would need to pay you for that Option and that would not be refundable. You can structure the transaction so that the buyers are buying the Option to purchase your home for $100,000.
  • July 27
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You need to be represented by a competent real estate agent first of all! That agent will creat a written contract which will protect you the best way possible  from any bad surprises and there are always surprises in any transaction! Everything must be done in writing!
  • July 27
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I hope you are working with at least one competent professional Realtor on this "transaction". I see many "Red Flags" in your question. If you are not....Hire one TODAY.
1. With the market as strong as it is, why would you continue with a "buyer" who is not ready, willing and able to purchase now?
2. Who will "monitor" the buyers ability to pay? What if something goes wrong? Who will hold the deposit?
3. What "contract" will protect you in case they "want to back out?"
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At the very least, you need a good Real Estate Attorney to look into this and that means more expenses for you. Is that what you really want?
 If I were your Agent, that house would have been back on the market immediately.
  • July 27
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Profile picture for juliehc
Rent-to-buy options are notorious for falling apart at the 'buy' stage. Renters essentially get to test drive the property before they commit, shop around for a year while they live in a great place, and decide well down the road if they REALLY want to buy the house, something other home buyers don't get to do. 
If you need the cash to move on and are willing to take the risk that the buyers won't follow through on a purchase and you will have to put the house back on the market when the rental term is up, then you can have the contract written as suggested--to have the deposit monies go to you if the deal doesn't go through. I would be surprised if the buyer/renter agrees to it, but if they do, you would have a good platform of confidence that they would follow through-or are willing to sacrifice $100k to change their minds. 
The $100k is a little light for $1.25mm--typically in this area we look for 10% at contracts. Good luck!
  • July 27
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Profile picture for The Vallee Gold Team
In your purchase contract you can have the earnest money released to you if the buyer defaults if written properly in your purchase contract. It would be prudent to speak with a real estate attorney or a licensed California real estate agent to help you structure the purchase contract. In my opinion, the deposit is too low for a $1,275,000 home. If you do not have a relationship with a REALTOR, then, I  would be happy to recommend one of my colleagues.

 
  • July 27
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