Earnest deposit and time off market fees: What these means in Albuquerque’s real estate
(Transcript Snippet): “Tego:
I want to talk about time off market fees and earnest money. You know, we had somebody here in the office and we were talking about it and they were, I could see they’re just kind of scratching their head. Cause we were kind of talking, you know, you know how in our business, we start talking this lingo and we start talking about stuff and like, well, what’s the earnest money was time time-bound park at fi well, let’s talk about it. Let’s define them, Tracy.
Tracy:
So time off market fee is something that’s relatively newer to our market, right? In a lot of states, a time off market fee is not that uncommon or it’s very, very common. So
Tego:
Can I just, can I just say something about that? If you are from another market or if you’ve heard of it, you may hear things called, um, option money or option fee or something like that. Basically the same thing, we just call it time off market fee here in New Mexico.
Tracy:
One of the things we do is that lingo thing we sling around the lingo, which is Tom. So we call it the Tom fee, which is time off market, conveniently Tom, right? People go Tom fee. And then, you know, we’re really confusing our clients and the public. So time off market fee versus earnest money Tigo. Yeah. Time off market, uh, is a payment from a buyer directly to a seller being offered on a purchase agreement to take that house off the market, to give them some time to do their due diligence. And it’s non-refundable and it’s just literally saying, Hey, I’ll give you this much money direct to the seller, no strings attached just for you to accept my offer, take your house off the market and give me time to do my due diligence and make sure I’m comfortable with the house and for the seller.
Tego:
Well, let me just, yeah, let me just ask, is that that money is that money credited to the buyer at closing like earnest money.
Tracy:
So typically the actual time off market fee itself, if you use the right forms and things is not credited to the buyer at all. Okay. However, we have seen people put that in addendums or amendments or, you know, make it so that maybe there is some sort of credit it could be, but the actual form itself does not the format it’s in, in set up to do. Doesn’t give credit to the buyer. That’s just money. The buyer has given to the seller, regardless of the outcome, there’s just no credit for it, but it it’s, you know, something to make the seller feel good about taking their house off the market
Tego:
And anybody that’s done new commercial real estate is probably pretty familiar with this concept. It’s usually called option money or option fee,
Tracy:
Right? So different from earnest money, right? So earnest money is money. That’s just good faith saying, I’m interested in your house. I’ll put some money at the title company. It go to the seller, right at the beginning of the under contract period, it’s money that they’re offering and, and putting it the title company. And when there’s a successful closing on the property, that earnest money amount is credited to the buyer’s closing costs. So they essentially get it back at closing towards whatever they’re putting it towards.
Tego:
Okay. So I’m going to give you the big, the big question here is if a buyer backs out of a transaction, does the seller get the Earnest?
Tracy:
So our purchase agreement clarifies all of the reasons where, uh, earnest money, if the buyer default defaults, it says in the contract, the seller gets the money, but there’s all sorts of contingencies in our purchase agreement where if the buyer isn’t comfortable with inspections, if their lending isn’t comfortable with the value of the property, an appraisal, all these different things that are written into the contract, as contingencies say, if the buyer cancels based on these contingencies, the buyer should get their money back. However, let’s talk about reality. The reality in New Mexico is different from other states, especially in our Albuquerque market. I can’t tell you what Las Cruces is like, but our Albuquerque market, the it’s actually by law, the buyers and sellers both have to sign a form agreeing to how the earnest money would be distributed in case the contract falls apart. And the title company can’t release that earnest money to either party, unless both buyers and sellers have signed the disbursement agreement.
Tracy:
Correct. So if there’s any conflict or a disagreement on who should get that money, it sits at title until buyers and sellers agree. So typically out of the earnest money, when we have a contract fall apart, we want to make sure that any vendors got paid. So if there was a home inspection, a termite inspection, a sewer inspection, a radon, a whatever that those people are getting paid by, whoever was responsible to pay for them. But, but really the earnest money distribution is, you know, between buyer and seller. And we facilitate how that money, you know, what typically the contract says. Um, but it’s really, um, a negotiation. So going back to Tom fee burse versus earnest money, right? So a Tom fee time off market fee is typically you give it to the seller. It’s done. There’s no negotiating later to say, I want that money back because I didn’t like something about your house, right? It’s especially in this competitive market, we are seeing Tom fees because somebody wants to sweeten the pot, so to speak and say, Hey, seller, I’m willing to give you some money to take your house, the market, accept my offer and let me do my due diligence. So let’s talk about it to go. How much do people usually do for earnest money and time off market here? Okay.
Tego:
You really going to put this on me? So it’s, uh, it, it varies, right? And it’s all, you know, everything’s negotiable, right? But you know, customarily, it used to be 1% of the purchase price for earnest money. We don’t see that very often these days.
Tracy:
So like a $300,000 house, 1% would be the buyer saying I’ll put $3,000 at the title company as earnest money in good faith, right. That we’re going to have a good transaction right now we’re seeing thousands of dollars often, right? $500, depending on the type of loan somebody is using like a VA loan where there’s zero out of pocket for a VA borrower, right. They might do 500. They might do 1%. Um, but with the competitive market too, we are seeing people do 1% sometimes to show that they want that.
Tego:
Yeah. And we’re seeing people do very large earnest deposits as well. Again, to show that they’re serious and they’re gonna, they’re gonna move forward. And then the time off market fee, Tracy, what, what kind of costs do you see on that are priced that a buyer is willing to pay a seller to take, take it off for due diligence?
Tracy:
I mean a huge range, but typically between $50 and $500. And I’d say typically it’s a hundred, you know, I’ll give you Mr. Seller, Mrs. Seller, a hundred dollars that I just give you with no strings attached for you to take your house off the market. And let me do my due diligence.
Tego:
So Tracy, in our purchase agreement and we have an information sheet that spells this out in our purchase agreement, it spells it out. So, you know, th th the whole idea is that these are options that are out there. And I have heard stories where, where somebody, um, was never advised that these were an option for them as they were doing their, their purchase agreement, or if they were on the seller side, that it was an option. So just to know that it’s there. And then, you know, if you do get into a, uh, an agreement, you understand, and well, you understand that they’re there and then you can dig into it more until you can wrap your brain around it again. Yeah.