Is option money and earnest money the same?
can anyone tell me if earnest money and option money are the same?
if i lease option a property with the buyer giving me 5k for the option, do they get this money back if they choose to buy? or can i keep this 5k and just tell them i will minus the 5k from the original sale price of the property if they opt to buy?
thanks for your insight!
Hi maxim,
Earnest money and option money is not the same, but does work a similar function.
Earnest Money Deposit = When you submit a written offer to a seller, you generally are required to include a deposit in the form of a personal check, cashier’s check or cash. That deposit is called "earnest money" and it signifies to the seller that you are ready and willing to purchase his or her home
Explanation in full
How much earnest money should you give the seller? A good rule of thumb is 1% of the offered price, but the custom may differ in your part of the country, so consult with an investor or realtor.
The listing broker holds your money in a special trust account until the transaction closes, at which time it will be applied to your down payment. If the seller doesn’t accept your offer or if some condition of the contract is not satisfied, the listing broker will refund your money.
Option Money = An agreed amount to be applied toward the agreed purchase price of real estate under an option to buy/lease option.
No they do not get the money back if the choose to buy, it normally goes toward the purchase price of the home. Keep in mind if they choose not to buy at the end of the option there is normally no refund due.
John Michael
That should sum it up right there. Good Job JohnMicheal... The last part of what is said is important to remember... and exciting when you think about it... Lets say you have cut a deal with a motivated seller and you have a L/O for a 6 yr term... Now find a T/B for a 1 yr term with a 5,000 Option payment... now lets say that you go through 4 T/Bs that didnt excercise there option to purchase the home. At 5,000 a pop, you made 20,000 dollars of nonrefundable cash. Not including the cash flow from the rent. Now if that last T/B doesnt pick the house up, grab it. The appreciation should be great in your favor, or sell it fast in the paper... show a discount, but you will still be making good money if you play with the numbers right... Good Luck... I am still learning all these principals as well... Scott