How to write an earnest money check for a written real estate offer?

Question

If I make a written offer complete with terms to buy a piece of real estate, there is the problem of how to draft the earnest money deposit.

In previous purchases of real estate I have made, what happens is that the amount was negotiated over the phone and the seller drew up the P&S and then when I went to the seller's realtor to sign it, I brought a bank check. In that case, I would have already been told who to have the check made out to. Since it is a bank check, I need to know that ahead of time.

Now, if I am making a written offer then it all changes because I am drafting the P&S and presenting it to the seller's agent. But in that case I have the problem of not knowing ahead of time who the earnest money check should be made out to. I see three possible options:

(1) When I visit the house for the first time, I can casually ask the agent who the earnest check should be made out to in the event I make an offer.

(2) I can put a rider on the P&S which warrants that the check will be delivered in a set amount of time like three days. The advantage of using a rider is that I can demand the name and bank account number of the escrow at the same time. In other words, the offer will have a separate sheet which says: "If you accept this offer, fill out and sign the form below" and the form has three blanks: name for check, name of bank holding escrow, account number of escrow.

(3) Call up and ask the agent before writing the P&S. So, in this method I would call the seller's agent and say "Hello, I am considering making an offer, who should the earnest money check be made out to?" The disadvantage of this method is that the seller gets forewarning that an offer is incoming, and also I will be in the dark as to where the money is going.

Answer 1

The earnest money deposit generally is not delivered with the offer. This generally isn't done because you may find out that your offer is going to be rejected immediately. You may have decided to make an offer under their stated selling price, you may have added a condition they are unwilling to meet. There is also the situation where other parties have already made an offer and their offering price has exceed yours; so your offer is rejected or at least slowed down while the continue negotiations with the other potential buyer.

In these cases getting a cashiers check before making the offer delays the offer, complicates the movement of money within your accounts, and delays your ability to make an offer on a another house. If the offer on the first house is rejected on Friday, and the bank is closed on Saturday, and you have to wait until Monday to redeposit the check; then you have to delay an offer on the perfect house you see on Sunday.

Of the three options you present the second one, "I can put a rider on the P&S which warrants that the check will be delivered in a set amount of time like three days." You may also find similar language in the local version of the standard real estate contract.

This delay in writing the check makes sense for another reason, the manner of the deposit and how it is to be made, how it is to be held, and under what terms it can be released should also be a part of the negotiation. You want to make sure it is being kept by a third party, you both have to trust that 3rd party, you need to know what are the exact conditions regarding that money.

The purpose of the deposit is to convince the seller that you are serious, and that the knowledge that you will lose the deposit makes you likely to go through your required parts of the transaction.

Also more and more of these deposits are being done electronically, there is no check involved.