Development

Blog

  • 16th Kratovil Conference on Real Estate Law & Practice

    Today, Accruit Associate General Counsel Jordan Born joins scholars, practitioners and other industry professionals at the

  • 16th Kratovil Conference on Real Estate Law & Practice

    Today, Accruit Associate General Counsel Jordan Born joins scholars, practitioners and other industry professionals at the

  • Earnest Money versus Down Payment – What’s the Difference?

    Two terms common to the sale and purchase of real estate are “earnest money” and “down payment.” In this blog post, I will review the definitions of each of these terms and how they are used in the context of real estate and escrow.  
    What is Earnest Money?
    According to Merriam-Webster, earnest money has various definitions, including:

    a serious and intent mental state
    something of value given by a buyer to a seller to bind a bargain
    a token of what is to come

    Earnest money is exactly these things.  In the purchase of an asset, it represents an advance deposit made by the purchaser toward the final purchase price.  Earnest money establishes the purchaser’s intent to acquire, through the contribution of value as a “token of what is to come.”  These dollars are frequently held by a third-party escrow agent, in trust, until conditions for release have been met.
    Conditions for release of these funds are negotiated between the seller and purchaser, and the earnest money can be applied against the purchase price of the asset after certain conditions are met, such as:

    Completion of inspection(s) or testing
    Completions of due diligence
    Purchaser’s procurement of additional financing

    The terms of the purchase or sale contract will determine whether the earnest money is refunded to the purchaser or retained by the seller.  Ultimately, earnest money can effectively be used to protect both parties.  If the purchaser is unable to fulfill certain contracted obligations, then the seller may retain the funds and avoid the burden of a settlement through the court system.  On the flip side, the purchaser is protected and can get funds back if the seller terminates the agreement or if inspections or due diligence produce a failing event.
    What is a Down Payment?
    Back to Merriam-Webster for the definition of a down payment:

    a part of the full price paid at the time of purchase or delivery with the balance to be paid later

    A down payment differs from earnest money in that, in the case of a down payment, the purchaser and the seller have moved successfully through contracted requirements and have arrived at a lender requirement for the purchaser to place a certain amount of their own money toward the acquisition price of the asset.
     
    Down payments can vary in amount, depending upon lender requirements and how much the purchaser can reasonably afford.  As a general rule, the more the purchaser can apply as a down payment, the better, as the larger amount can make:

    the loan approval process easier,
    the amount of the loan smaller, and
    the resulting payments and interest costs lower.

    Summary
    While different, earnest money and down payments are a very important part of the sale and purchase process.  As stated above, the more a purchaser can apply as earnest money or as a down payment, the better.  Large earnest money deposits can encourage the seller toward temporarily taking the asset off the market and accepting the purchaser’s offer.  In highly competitive scenarios, earnest money is a powerful tool for the purchaser.  Down payments represent another powerful tool for the purchaser, as they indicate a strong commitment to the lender regarding shared risk in the investment. 

  • Earnest Money versus Down Payment – What’s the Difference?

    Two terms common to the sale and purchase of real estate are “earnest money” and “down payment.” In this blog post, I will review the definitions of each of these terms and how they are used in the context of real estate and escrow.  
    What is Earnest Money?
    According to Merriam-Webster, earnest money has various definitions, including:

    a serious and intent mental state
    something of value given by a buyer to a seller to bind a bargain
    a token of what is to come

    Earnest money is exactly these things.  In the purchase of an asset, it represents an advance deposit made by the purchaser toward the final purchase price.  Earnest money establishes the purchaser’s intent to acquire, through the contribution of value as a “token of what is to come.”  These dollars are frequently held by a third-party escrow agent, in trust, until conditions for release have been met.
    Conditions for release of these funds are negotiated between the seller and purchaser, and the earnest money can be applied against the purchase price of the asset after certain conditions are met, such as:

    Completion of inspection(s) or testing
    Completions of due diligence
    Purchaser’s procurement of additional financing

    The terms of the purchase or sale contract will determine whether the earnest money is refunded to the purchaser or retained by the seller.  Ultimately, earnest money can effectively be used to protect both parties.  If the purchaser is unable to fulfill certain contracted obligations, then the seller may retain the funds and avoid the burden of a settlement through the court system.  On the flip side, the purchaser is protected and can get funds back if the seller terminates the agreement or if inspections or due diligence produce a failing event.
    What is a Down Payment?
    Back to Merriam-Webster for the definition of a down payment:

    a part of the full price paid at the time of purchase or delivery with the balance to be paid later

    A down payment differs from earnest money in that, in the case of a down payment, the purchaser and the seller have moved successfully through contracted requirements and have arrived at a lender requirement for the purchaser to place a certain amount of their own money toward the acquisition price of the asset.
     
    Down payments can vary in amount, depending upon lender requirements and how much the purchaser can reasonably afford.  As a general rule, the more the purchaser can apply as a down payment, the better, as the larger amount can make:

    the loan approval process easier,
    the amount of the loan smaller, and
    the resulting payments and interest costs lower.

    Summary
    While different, earnest money and down payments are a very important part of the sale and purchase process.  As stated above, the more a purchaser can apply as earnest money or as a down payment, the better.  Large earnest money deposits can encourage the seller toward temporarily taking the asset off the market and accepting the purchaser’s offer.  In highly competitive scenarios, earnest money is a powerful tool for the purchaser.  Down payments represent another powerful tool for the purchaser, as they indicate a strong commitment to the lender regarding shared risk in the investment. 

  • Earnest Money versus Down Payment – What’s the Difference?

    Two terms common to the sale and purchase of real estate are “earnest money” and “down payment.” In this blog post, I will review the definitions of each of these terms and how they are used in the context of real estate and escrow.  
    What is Earnest Money?
    According to Merriam-Webster, earnest money has various definitions, including:

    a serious and intent mental state
    something of value given by a buyer to a seller to bind a bargain
    a token of what is to come

    Earnest money is exactly these things.  In the purchase of an asset, it represents an advance deposit made by the purchaser toward the final purchase price.  Earnest money establishes the purchaser’s intent to acquire, through the contribution of value as a “token of what is to come.”  These dollars are frequently held by a third-party escrow agent, in trust, until conditions for release have been met.
    Conditions for release of these funds are negotiated between the seller and purchaser, and the earnest money can be applied against the purchase price of the asset after certain conditions are met, such as:

    Completion of inspection(s) or testing
    Completions of due diligence
    Purchaser’s procurement of additional financing

    The terms of the purchase or sale contract will determine whether the earnest money is refunded to the purchaser or retained by the seller.  Ultimately, earnest money can effectively be used to protect both parties.  If the purchaser is unable to fulfill certain contracted obligations, then the seller may retain the funds and avoid the burden of a settlement through the court system.  On the flip side, the purchaser is protected and can get funds back if the seller terminates the agreement or if inspections or due diligence produce a failing event.
    What is a Down Payment?
    Back to Merriam-Webster for the definition of a down payment:

    a part of the full price paid at the time of purchase or delivery with the balance to be paid later

    A down payment differs from earnest money in that, in the case of a down payment, the purchaser and the seller have moved successfully through contracted requirements and have arrived at a lender requirement for the purchaser to place a certain amount of their own money toward the acquisition price of the asset.
     
    Down payments can vary in amount, depending upon lender requirements and how much the purchaser can reasonably afford.  As a general rule, the more the purchaser can apply as a down payment, the better, as the larger amount can make:

    the loan approval process easier,
    the amount of the loan smaller, and
    the resulting payments and interest costs lower.

    Summary
    While different, earnest money and down payments are a very important part of the sale and purchase process.  As stated above, the more a purchaser can apply as earnest money or as a down payment, the better.  Large earnest money deposits can encourage the seller toward temporarily taking the asset off the market and accepting the purchaser’s offer.  In highly competitive scenarios, earnest money is a powerful tool for the purchaser.  Down payments represent another powerful tool for the purchaser, as they indicate a strong commitment to the lender regarding shared risk in the investment. 

  • Seller Financing in a 1031 Tax-Deferred Exchange

    In a sale of real estate, it’s common for the seller, the taxpayer in a 1031 exchange, to receive money down from the buyer in the sale and to carry a note for the additional sum due. The taxpayer facilitates financing for the buyer in this way to make the transaction happen. Sometimes this arrangement is entered into because both parties wish to close, but the buyer’s conventional financing is taking more time than expected. If the buyer can procure the financing from the institutional lender before the taxpayer closes on their replacement property, the note may simply be substituted for cash from the buyer’s loan. Regardless of the circumstance for seller financing, without further steps, the taxpayer’s use of the value of the note toward the purchase of the replacement property will be taxable.
    In a non-exchange context there is no problem in the taxpayer carrying back a note from the buyer. However, under the exchange regulations, the actual or constructive receipt of the note would run afoul of qualified intermediary.
    The taxpayer and qualified intermediary should also be careful in timing when the note is assigned to the taxpayer. There is a natural tendency to pass the note simultaneously upon receipt by the qualified intermediary of the equivalent amount of cash. After all, the client is putting into the exchange account the exact same value that is being taken out. However, because the regulations prohibit the taxpayer from the “right to receive money or other property” during the pendency of the exchange transaction, it is probably a safer practice to to assign the note to the seller simultaneously with the acquisition of the replacement property or after the replacement property has been acquired. Some qualified intermediaries will provide a form they will sign acknowledging the substitution of cash for the note with a promise to distribute the note upon the closing of the exchange account.
    For more information about 1031 exchanges, contact Accruit by calling (800) 237-1031 or emailing info@accruit.com today! 

     

  • Seller Financing in a 1031 Tax-Deferred Exchange

    In a sale of real estate, it’s common for the seller, the taxpayer in a 1031 exchange, to receive money down from the buyer in the sale and to carry a note for the additional sum due. The taxpayer facilitates financing for the buyer in this way to make the transaction happen. Sometimes this arrangement is entered into because both parties wish to close, but the buyer’s conventional financing is taking more time than expected. If the buyer can procure the financing from the institutional lender before the taxpayer closes on their replacement property, the note may simply be substituted for cash from the buyer’s loan. Regardless of the circumstance for seller financing, without further steps, the taxpayer’s use of the value of the note toward the purchase of the replacement property will be taxable.
    In a non-exchange context there is no problem in the taxpayer carrying back a note from the buyer. However, under the exchange regulations, the actual or constructive receipt of the note would run afoul of qualified intermediary.
    The taxpayer and qualified intermediary should also be careful in timing when the note is assigned to the taxpayer. There is a natural tendency to pass the note simultaneously upon receipt by the qualified intermediary of the equivalent amount of cash. After all, the client is putting into the exchange account the exact same value that is being taken out. However, because the regulations prohibit the taxpayer from the “right to receive money or other property” during the pendency of the exchange transaction, it is probably a safer practice to to assign the note to the seller simultaneously with the acquisition of the replacement property or after the replacement property has been acquired. Some qualified intermediaries will provide a form they will sign acknowledging the substitution of cash for the note with a promise to distribute the note upon the closing of the exchange account.
    For more information about 1031 exchanges, contact Accruit by calling (800) 237-1031 or emailing info@accruit.com today! 

     

  • Seller Financing in a 1031 Tax-Deferred Exchange

    In a sale of real estate, it’s common for the seller, the taxpayer in a 1031 exchange, to receive money down from the buyer in the sale and to carry a note for the additional sum due. The taxpayer facilitates financing for the buyer in this way to make the transaction happen. Sometimes this arrangement is entered into because both parties wish to close, but the buyer’s conventional financing is taking more time than expected. If the buyer can procure the financing from the institutional lender before the taxpayer closes on their replacement property, the note may simply be substituted for cash from the buyer’s loan. Regardless of the circumstance for seller financing, without further steps, the taxpayer’s use of the value of the note toward the purchase of the replacement property will be taxable.
    In a non-exchange context there is no problem in the taxpayer carrying back a note from the buyer. However, under the exchange regulations, the actual or constructive receipt of the note would run afoul of qualified intermediary.
    The taxpayer and qualified intermediary should also be careful in timing when the note is assigned to the taxpayer. There is a natural tendency to pass the note simultaneously upon receipt by the qualified intermediary of the equivalent amount of cash. After all, the client is putting into the exchange account the exact same value that is being taken out. However, because the regulations prohibit the taxpayer from the “right to receive money or other property” during the pendency of the exchange transaction, it is probably a safer practice to to assign the note to the seller simultaneously with the acquisition of the replacement property or after the replacement property has been acquired. Some qualified intermediaries will provide a form they will sign acknowledging the substitution of cash for the note with a promise to distribute the note upon the closing of the exchange account.
    For more information about 1031 exchanges, contact Accruit by calling (800) 237-1031 or emailing info@accruit.com today! 

     

  • Seller Financing in a 1031 Tax-Deferred Exchange

    In a sale of real estate, it’s common for the seller, the taxpayer in a 1031 exchange, to receive money down from the buyer in the sale and to carry a note for the additional sum due. The taxpayer facilitates financing for the buyer in this way to make the transaction happen. Sometimes this arrangement is entered into because both parties wish to close, but the buyer’s conventional financing is taking more time than expected. If the buyer can procure the financing from the institutional lender before the taxpayer closes on their replacement property, the note may simply be substituted for cash from the buyer’s loan. Regardless of the circumstance for seller financing, without further steps, the taxpayer’s use of the value of the note toward the purchase of the replacement property will be taxable.
    In a non-exchange context there is no problem in the taxpayer carrying back a note from the buyer. However, under the exchange regulations, the actual or constructive receipt of the note would run afoul of qualified intermediary.
    The taxpayer and qualified intermediary should also be careful in timing when the note is assigned to the taxpayer. There is a natural tendency to pass the note simultaneously upon receipt by the qualified intermediary of the equivalent amount of cash. After all, the client is putting into the exchange account the exact same value that is being taken out. However, because the regulations prohibit the taxpayer from the “right to receive money or other property” during the pendency of the exchange transaction, it is probably a safer practice to to assign the note to the seller simultaneously with the acquisition of the replacement property or after the replacement property has been acquired. Some qualified intermediaries will provide a form they will sign acknowledging the substitution of cash for the note with a promise to distribute the note upon the closing of the exchange account.
    For more information about 1031 exchanges, contact Accruit by calling (800) 237-1031 or emailing info@accruit.com today! 

     

  • Seller Financing in a 1031 Tax-Deferred Exchange

    In a sale of real estate, it’s common for the seller, the taxpayer in a 1031 exchange, to receive money down from the buyer in the sale and to carry a note for the additional sum due. The taxpayer facilitates financing for the buyer in this way to make the transaction happen. Sometimes this arrangement is entered into because both parties wish to close, but the buyer’s conventional financing is taking more time than expected. If the buyer can procure the financing from the institutional lender before the taxpayer closes on their replacement property, the note may simply be substituted for cash from the buyer’s loan. Regardless of the circumstance for seller financing, without further steps, the taxpayer’s use of the value of the note toward the purchase of the replacement property will be taxable.
    In a non-exchange context there is no problem in the taxpayer carrying back a note from the buyer. However, under the exchange regulations, the actual or constructive receipt of the note would run afoul of qualified intermediary.
    The taxpayer and qualified intermediary should also be careful in timing when the note is assigned to the taxpayer. There is a natural tendency to pass the note simultaneously upon receipt by the qualified intermediary of the equivalent amount of cash. After all, the client is putting into the exchange account the exact same value that is being taken out. However, because the regulations prohibit the taxpayer from the “right to receive money or other property” during the pendency of the exchange transaction, it is probably a safer practice to to assign the note to the seller simultaneously with the acquisition of the replacement property or after the replacement property has been acquired. Some qualified intermediaries will provide a form they will sign acknowledging the substitution of cash for the note with a promise to distribute the note upon the closing of the exchange account.
    For more information about 1031 exchanges, contact Accruit by calling (800) 237-1031 or emailing info@accruit.com today!