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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 very basic understanding of contract law (this is
explained in detail in my report) but the quick answer goes like this:
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 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 (.)
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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.
These are just a few of the 101 tips you will find in our FREE
E-Report: 101 Tips For Homebuyers, Sellers And Money Borrowers which
will help you be a smarter home buyer and seller. Want some advice? Go
to our website, go to the freebies section and download your copy now!
Enjoy! Jim Hart
Copyright © 2006 James W. Hart, IV All Rights reserved
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