Buying or selling a home in New Mexico? Learn about the TOM fee and earnest deposit, and things to consider when offering or counter-offering.

Dated: 07/26/2019

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Buying or selling a home in New Mexico? 

 

Learn about the TOM fee and earnest deposit, and things to consider when offering or counter-offering.

 

The time-off-market fee, or TOM fee, is paid by the buyer to the seller in whatever form agreed upon in the purchase agreement. The fee is intended to compensate the seller for taking their home off the market to allow the buyer to conduct inspections and review the seller’s property disclosure. It’s negotiable whether the TOM fee is paid, and the amount if so. The property is taken off the market, but the seller has the right to accept one back-up offer during the time-off-market period. This is also the inspection period. If the buyer and seller can come to terms on the inspection results and the disclosure statement, then the sale proceeds...if not, the seller keeps the TOM fee and the sale terminates. The TOM fee is not credited to the buyer at closing, unless otherwise agreed to in the contract. 

 

If it’s not required, then why would a buyer want to pay a TOM fee? 

 

Most purchases fall apart due to unresolved inspection issues. They’re are numerous contingencies in a purchase agreement that protect both the buyer and seller and allow them to terminate the contract when terms can’t be met. When a contract is terminated, the earnest deposit will need to be distributed according to the consent of both the buyer and seller. If the parties can’t agree on who gets the earnest deposit, then a resolution process ensues. This resolution process can be costly in terms of time, money, and resources. It just depends on the parties involved! 

 

The TOM fee is designed to prevent such issues. There’s no restrictions on the TOM fee, but amounts between $50-$500 are appropriate depending on the parties involved and the terms of the purchase. Similarly, there are no restrictions on the earnest deposit amount, but amounts typically range from $500 to 1% (or more) of the purchase price. It just depends! 

 

Whether you’re buying or selling property, your real estate broker can provide guidance based on your needs. The choice is always yours, but we can help you with information so you can be confident in your decision.

 

The value in the TOM fee is realized with:

  1. the seller taking their home off market 

  2. the buyer being allowed to perform some initial due diligence, and

  3. the reduced risk associated with the earnest deposit

 

What’s the earnest deposit? 

 

The earnest deposit is a good faith payment, held by the title company in escrow. The earnest deposit amount is negotiable, and is usually credited to the buyer at closing. Amounts can vary, but I’ve seen them range from $500 for first time home buyers to 1% for an investment property. Whether the earnest deposit is paid, the amount paid, and how it’s paid...is negotiable. The seller does not receive the earnest deposit. 

 

How does this really work?

 

I’ve been involved in transactions where the TOM fee replaced some (or all) of the earnest deposit, and vice versa! It really depended on the needs of my clients, and what shook-out from the negotiation process. I’ve had situations when my clients were firm about not paying a TOM fee, and other situations when my clients wanted to pay a TOM fee to enhance the competitiveness of their offer when multiple offers were on the table. 

 

I’ve represented sellers that decided to ask for a TOM fee, because they wanted to validate the worthiness of a buyer’s ability and intention to see the transaction through..they’ve called this skin in the game. I’ve also rep’d sellers that did not want to bother asking for a TOM fee, because they didn’t want to cloud the waters during negotiations. 

 

It just depends!

 

In the end, it depends on the motivation and risk tolerance for each person. What do YOU want? I always consult with my clients to see what they want to do, then go to bat for them at the negotiating table. It’s your home and your decision, I’m just the guy with information to give. 

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Chris Newman

Chris is a dedicated professional interested in providing the best service to his clients. Energy, knowledge, and timeliness are just some of the strengths he will leverage to provide you with a favor....

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