Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing Consideration in Real Estate.
One of the most important requirements of a real estate contract is consideration. In this episode, Charles discusses what consideration is and why it is a significant part of all real estate contracts.
Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing consideration in real estate.
Charles:
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Charles:
When we are discussing legal topics and clauses such as contracts and consideration, it is important to realize that I am not an attorney, and that you should always seek the advice of counsel prior to making any investment decision.
Charles:
So there are seven basic requirements mandated by law that must be present to have a valid real estate contract. Number one is the contract must be in writing and there must be an offer and acceptance of set offer. Two, the contract must have mutual senate and legal purpose. Three, the contract must identify all the parties involved. Four, the contract must identify the subject property. Five. The contract must identify the purchase price of the subject property. Six. The contract must be signed by all parties involved. And seven, the contract must include consideration. So what is consideration? Well consideration is when one party offers something, a legal value to another party and a contract. Items that have value include money services and other valuable goods. Without consideration, a contract is not legally enforceable in a real estate contract. More specifically, consideration is typically an earnest money deposit, the buyer’s providing an earnest money deposit or EMD in exchange for the performance or the promise to perform by the seller.
Charles:
Now a simple example would be that a buyer offers $100,000 to purchase a home and the seller accepts this offer. The buyer will offer an earnest money deposit, the buyer’s consideration, and the seller is agreeing to sell the home to the buyer. The seller’s consideration. Consideration is usually refundable in part or whole, however it is transaction dependent. Now, consideration is due at the time of the contract signing. The earnest money deposit is deposit held by a neutral third party, usually always an escrow or an attorney. And once this happens, the contract is valid. Escrow’s usually open by the seller, but I’ve opened it before as a buyer, especially when buying single family houses for cash. It makes the process easier for the seller. And I normally would tell the seller that escrow will be open within 48 hours. The typical earnest money deposit is 1% to 3% of the purchase price.
Charles:
If you are in a competitive market or there are multiple offers, you might want to increase your EMD to make your offer stronger. Now, the in most residential contracts, there are a number of contingencies that allow you to get out of the contract and receive your earnest money back. These include home inspections, the due diligence period the appraisal contingency or the financing contingency earnest money. And going hard is a term used by investors and going hard is the point where part where all the earnest money deposit is becoming non-refundable in hot markets, it is common practice for a portion of the earnest money deposits to go hard. Day one, we are selling in an apartment complex right now for about $10 million, and the buyer is putting down an earnest money deposit of 1% with half of that, or about $50,000 going hard on day one.
Charles:
Now this shows us the sellers that the buyer is serious. Another example would be a couple years back where an investor was purchasing a $6 million apartment complex from us and they put $50,000 down hard day one. Well, they were unable to get financing for one reason or another, and we kept their $50,000 of earnest money. So day one non-refundable deposits are a tactic that should only be used by experienced investors. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments and potential show [email protected]. Look forward to two episodes next week. See you then.
Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.
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