Understanding When to Use Earnest Money in Land Deals

I’m not to the point of needing to put a deposit down yet, but just wondering if an Earnest Money Deposit always has to be put down on a land deal? Is it just a good idea and not always necessary? If you don’t always put earnest money down, why not and what criteria do you use to determine when you do or don’t? Does it have to be mentioned in a purchase agreement either way? Thanks!

@bamahoser An Earnest Money Deposit (EMD) isn’t always required for a land deal, but it’s pretty common in most ‘normal’ transactions (a land flip isn’t necessarily considered normal because the seller is highly motivated, and we’re offering a very low price). Think of it as a good-faith gesture showing you’re serious about buying. It’s not a must-do, but it’s a smart move in some cases.

Why? Because it can make your offer look stronger, especially if there are other interested buyers. But if you’re the only deal on the table, you don’t need it, like if the seller is super eager to sell quickly or if it’s a market where there aren’t many buyers.

When deciding whether to put down earnest money, consider how competitive the market is, how much you want the land and the seller’s situation.

As for the purchase agreement, if you’re doing an EMD, it definitely needs to be in there. This part of the contract covers how much you’re paying, when, and what happens to the money if the deal doesn’t go through. If you’re not doing an EMD, it’s still good to mention that in the agreement so everything’s clear.

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Thanks Seth!

I knew EMD was a common thing in most normal transactions, like you say, especially when buying a primary residence, but I wasn’t sure if it was typical in a low offer land flip. So, it depends on the situation, but it definitely vouldn’t hoit (wouldn’t hurt), eh?

I haven’t been thru any official training yet, as I’m waiting for my (hesitant, dare I say nervous) wife to finish her masters in May and start drawing a paycheck before I spend any significant money on land flipping. I just learned of the concept a few months ago, so I’m trying to digest all the free information out there in the mean time as my W2 and other responsibilities allow. That said, I can’t thank you enough for the WEALTH of information you provide at RETipster!!! What are you, crazy? :wink: I have a lot more of your blogposts to read, but I’ve already listened to ALL your podcasts and also Jaren’s @ Land Mavericks and just started going thru some of Jessey Kwong’s @ Pebble and then I’ll probably re-listen to yours again…unless you have any other suggestions?

Thanks again for you response to my very first forum post!

btw I’ve lived in Michigan (East of Ann Arbor) for the past 13 years, but I lived in Alabama for 15 years before that, hence the name BamaHoser. I grew up in New Jersey, though, so sometimes I say I’m from Joisy ya’ll.

Anyway, glad to be HERE.