In an earlier post I wrote about my end of July 2008 financial status. One of my assets is entered as earnest money, which is defined as 5% of the initial value of the condo. It acts as a good faith placeholder that I will not back out of my pending condo purchase.
Here’s a brief timeline of how my new construction condo purchase took place. I picked a community, builder and then floor plan. I found a lender for my mortgage and then in December of 2007 I signed a contract agreeing to purchase one of the new condos when they were finished in the Fall of 2008. I was supposed to put 5% down as earnest money as a good faith placeholder. In June I started making selections for all of my upgrades. In October of 2008 I will close on my condo and surrender the rest of my downpayment. The remainder of my downpayment will be the 20% of the final price of the condo (after upgrades) minus the 5% earnest money already paid.
Back to the earnest money. The builder requires a payment of 5% at the time of signing the contract to ensure the buyer will not back out. If I decided to not go forward with the purchase of the condo I would forfeit this 5%. This is understandable, because the builders don’t get loans from the bank to start construction of the condo until they have sold a certain number of units. What isn’t understandable, is what the builder does with the earnest money.
My earnest money was going to be put into a savings account that would net me a grand total of 0.5% interest. This was at a time when my MMA was netting me 4.0% and 3- and 6-month CD’s were netting me 4.75-5.0%. Additionally, my parent’s savings account was up around 5.0% with a minimum account value of $50,000, which is easily attainable if you pool everybody’s earnest money into one account. I just couldn’t understand why I had to give them my hard-earned money so it could be invested at such a low interest rate, when it could easily be invested at a much higher rate with no added risk.
I called my contact with the builder and argued my case. I was able to get as high up in the company as the CFO. He absolutely refused to put my money in anything that resembled a respectable return. I tried to get him to agree to a payment plan where I made my earnest money payments in installments so I could keep my money in high interest rate vessels as long as possible. The CFO couldn’t believe that I was arguing over “a couple hundred dollars”. At that point I said, “how do you get to be a CFO without understanding the value of a couple hundred dollars?” After I said that he decided he would let me pay half my earnest money at the contract signing and half four months later.
I have formed a few conclusions from this experience. First, CFO’s just don’t understand the value of a couple hundred dollars. They’ve probably been making six figures for way too long. Second, if you form well thought out arguments and argue with a purpose you can save a few bucks!!! Anybody else have any instances of arguing your way into a victorious savings?