Everything A Real Estate Agent Doesn't Want You To Know! Part-03

If you are thinking about buying a home you may want to read this article. It blows me away when I think of all the homebuyers that give real estate agents large sums of money as a "good faith deposit" when they sign a purchase offer on a home. I have had clients that have given agents thousands of dollars when they make an offer on a home and it is one of the dumbest mistakes a home buyer can make! Why? Well, you have to have a basic understanding of contract law and here's a quick answer: Every purchase offer is half a contract--it becomes a contract when it is accepted by the seller...

Every contract must have "consideration" and consideration is anything of value. Money is consideration. So when a homebuyer writes an offer and gives a good faith deposit, the good faith deposit IS the "consideration" which makes the offer a contract when accepted by the seller. In other words, the money IS what makes the purchase offer binding on a buyer when the offer is accepted by the seller and becomes a contract. And agents LOVE the fact that people put down large sums of money when they write an offer!

Why? Well, for starters it shows a serious buyer. Secondly, when a buyer gives an agent a large amount of money like this, the buyer loses temporary control of the cash and the real estate agency holds it in escrow. That gives agents control.

What most people don’t know is that even one-dollar ($1.00) is consideration and can make a purchase offer a contract just as well as $10,000.00. And, when it comes to financing, large good faith deposits don’t really do anything to improve the chances of a buyer getting a home loan. You see, that large good faith deposit can be kept in YOUR pocket until you take an application on a loan. In this case, a buyer who wanted to put a large down payment on a home can pay it to the LENDER instead! Inevitably, that’s where the good faith deposit gets applied anyway…as part of the down payment on a home which is ultimately goes toward the purchase. So why give it to the real estate agent? Yet everyday people do it-they lose the control over the money with no gain whatsoever. Either you are financially qualified to borrow a home loan or not. While a large down payment can help over come funding objections, the agent plays little or no role in the financing end of a real estate transaction. If a borrower is unqualified to borrow a home loan, a very large good faith deposit won’t change that fact (.)

And buyers better stop and think about the purchase offer! Agents tend to do all the writing on the face of an offer and (seeing how it’s half a contract) that can be d.a.n.g.e.r.o.u.s! You want your attorney to review that offer before you submit it to a seller (.) Now, one of the angles you may hear is "we have to move fast on this deal before the other person buys it". Well, that may be true BUT anytime you find yourself "moving fast" on a real estate deal (or any business deal) you are WIDE OPEN for mistakes in judgement. If you like the potential for financial pain, do it their way. If you want to protect legal and financial interests, do it my way.

So what is a reasonable amount of money to put on the table with your offer? You want to limit the amount of money you give the agent to an amount you can afford to lose say, $100.00 to 250.00. This amount of money shows you are serious about the offer while keeping your money in your pocket.

And remember the 5 magic words when writing an offer: You want to write "Subject to buyers attorneys approval " (right above your signature) BEFORE you sign the offer. In this way, IF you find yourself involved in a funky transaction, you can get out of it with the help of your attorney. Thanks for reading!

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Copyright © 2006 James W. Hart, IV All Rights reserved