Straight Talk About Real Estate

When a buyer makes an offer to purchase, how can the seller know that this buyer is serious about buying? What if the seller accepts the offer and proceeds with his plans to move and the buyer decides to change his mind?

The seriousness of the buyer is measured by the size of his deposit. The deposit is the money he puts into escrow upon signing of the purchase contract before the transaction is closed. This is not the down payment.

The deposit is what the buyer stands to lose if he changes his mind about buying the house for reasons that are not stated as contingencies in the contract. For example, if obtaining a certain kind of loan is a contingency to buying, and the buyer couldn’t qualify for that loan, then he can cancel the contract and get his deposit back. Another example, if buying is contingent on the buyer’s satisfaction with the termite inspection, and the termite report did not satisfy him, then he gets his deposit back.

However, if the buyer’s contingencies have all be met, and then he decides he just doesn’t want to buy, then he loses his deposit to the seller.

The deposit can be any amount acceptable to both buyer and seller. As you can see, it is more secure for the seller to see a higher deposit, and it is better for the buyer to give as low a deposit as possible. A customary amount in our area is anywhere from 2 to 3% of the purchase price. If I represent the seller, and the buyer’s deposit is low, I find out if there is a good explanation, and ask for a higher deposit. If the buyer is unwilling to put in more for no good reason, I discourage the seller from accepting the offer. I find that a buyer with a low deposit is generally not serious, and usually causes problems down the line, and end up cancelling escrow.