When entering a sale agreement with a seller, you will set aside some cash that will serve as earnest money or an earnest deposit. This money helps to showcase to the seller that you are truly interested in buying the property. After all, if the buyer didn’t have anything on the line, they could walk away from the sale whenever they wanted with no repercussions, which could prove very costly to the seller.
You’ll also want to be smart with your money when putting down an earnest deposit, because that money will typically be given to the seller in the event that you back out of the purchase or otherwise cannot complete the sale. While a larger earnest money deposit may suggest that you are very interested in ensuring the sale goes through, you could also be out a lot of money if the sale falls through because of an issue on your end, so navigating these waters can be a bit tricky. We share some best practices for managing an earnest money deposit during the course of a commercial purchase.
Earnest Money Best Practices
If you’re working on getting an earnest money deposit together as part of your purchase agreement, here are some tips you’ll want to keep in mind:
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No Need For A Huge Amount - There are countless other factors that a seller will prioritize when choosing an offer other than earnest money deposit size, so you don’t need to expose yourself to unnecessary risk by offering a large amount when it really doesn’t impact the buyer’s decision.
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Know What Your Purchase Agreement Says - It’s also wise to know what your purchase agreement says in the event you have to back out of a sale. In most instances, earnest money is forfeited to the seller, but there may be some instances where you are legally able to reclaim these funds. Understand what is stated in the purchase agreement, but know that the most common reasons for a sale falling through will likely not result in you being able to recoup this money.
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Work Quickly - If your offer is accepted, don’t dilly dally when it comes to doing what you need to do to ensure the sale stays on track. First and foremost, ensure that you have your financing in order so that you have the purchasing power to complete the deal.
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Work With A Title Services Company - There are a number of tasks you’ll want to complete during the due diligence phase of a purchase, and you can fall behind or miss items if you try to do them on your own. Protect your earnest money and your future property by working with a title services company that can assist with necessary inspections and surveys that need to be conducted before your purchase goes through. Many of these inspections are required in order for a bank to finance your loan, so don’t let your financing fall through because you missed a required inspection. Let the team at Commercial Partners ensure the entire purchase process runs smoothly.
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Smart Contingencies - When writing a purchase agreement, it’s smart to have some simple contingencies in place that will allow you to back out of a sale and keep your earnest money. Some of the most common include contingencies for failed inspections or low appraisals, but know that having too broad or too many contingencies can scare off a seller. Have a few simple safeguards in place with your offer.
If you keep these tips in mind and trust the commercial purchasing process to the team at Commercial Partners, we’re confident that you’ll be making a wise investment with your earnest money. For more information about earnest money or the commercial purchasing process, reach out to the team at Commercial Partners today at (612) 337-2470.