What Every Buyer Should Know!|How Much Deposit Do I Need to Make an Offer?

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Deposit Questions, New Homes and Resale Homes Answered by North Carolina Real Estate Broker Terry McDonald

$QujestionmarkThere are two different deposit/contract situations to consider, is it a new home or is it a resale home? Just a word of warning, the new home contract is the quintessential “one-sided” contract– it is very strong builder rights, low on Buyer rights, but high on Buyer responsibilities, low on builder responsibilities. I’ll say more at the end regarding this issue.

The builder will have a predetermined deposit requirement, which typically they adhere to closely, with only one or two exceptions. They will sometimes lower their deposit requirements with an inventory home. There are two key considerations, first the deposit will beheld by the builder, not in escrow, and 2nd, if negotiating for inventory, typically we (Buyer Agents) would put more emphasis on price, than deposit.

The exception would be of course if we weren’t certain we (you) cold get a loan, or you weren’t certain this was the home, but wanted back up.. but usually we’ll be negotiating price with the builder on an inventory home.

One local builder requires a 5% deposit on “to-be-builts,” then 50% on all options. This has the affect of committing the Buyer to heavily to the home in advance of it being built. In other words as closing approaches, despite the Buyer’s of satisfaction- or dissatisfaction the Buyer will have so much of their money in the deal that Buyers feel they have little choice and tend to close. A one sided contract to begin with has become concrete-like for the typical buyer once they have $30-50,000 down on a house and the builder tells them they will lose their deposit if they don’t close. Most are understandably unwilling to walk away from such a large deposit, and we try and never let our clients get into that situation.

Normal deposit requirements range from $4,000 to $10,000, and some builders as for more.

Re-sale deposits are different from new homes in three ways,

1) large deposits are not expected- historically 1% of the sales price has been sufficient and 2) Earnest money deposits are held in escrow by one of the broker offices and are subject to escrow laws and conditions, and 3) they are more frequently negotiated.

There is one very important consideration, that shapes the conversation below, regardless of any contract language, deposits are only refundable with the signatures of both Buyers and Sellers. What does that mean? It means the deposit is always potentially at risk, even in the case of an express condition in the contract. The easiest example is the house does not appraise, or you are unable to secure the financing- there are express conditions in the contract saying that in the event the house does not appraise, or you are unable to secure financing, Buyer is entitled to a refund of all Earnest moneys. That is in the contract. Nevertheless, it is part of escrow law that states it DOES require the Seller and Buyer to sign off on a refund form for the escrow agent to release that deposit back.

Usually Sellers will do this without issues- but because they do have to sign this form, and the Buyer could potentially have to sue to get the money refunded, I recommend only the minimum deposit required to get the house– unless there is some negotiating reason that alters that position, which there sometimes is, see below.

BUYER AGENT Negotiating Point:

The new resale contracts required as of November 2007 tightens the Buyer requirements in a number of important areas, making the loss of a deposit more likely if the Buyer fails to perform diligently on their side of the contract. For that reason, the negotiating point is to always seek the lowest deposit possible, putting as little money at risk as possible. In most cases we will seek that very lowest possible deposit- our first offers will have deposits in the .5% range going forward.

I also expect the Seller’s (Listing) Agent to counteroffer expecting a larger earnest money deposit. As Buyer Agents, it is our position that the safest deposit is one protected by doing the right things first: getting a loan pre-approval, only making offers on homes we are certain buyers want, unless they want to tie up the house regardless, knowing they may be risking their deposit.

There is a significant exception: suppose a Buyer finds a house that is perfect in every way, and they’d like to buy it right away, but for less. We can make the contract stronger by increasing the deposit and simultaneously lowering the offer price– so the Listing agent will present a very strong low offer, and the Seller will have to make a decision. Ideally we would also get the Seller’s preferred closing date in the offer.

We’d need hours to discuss all the possibilities, but hopefully you get the idea.

Frequently the deposit is an after thought- it shouldn’t be, there is always a “best” deposit amount for the Buyer’s goals.

As always, this is information to assist in preparing an offer, but in no way is advice for any particular situation. Consult your attorney for the most up to date information.

Call me direct for questions on a home, 704-351-1519

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Terry McDonald

Terry McDonald

I am the owner and operator of CharlotteCommunitiesOnline.com and was inspired to create this website when I moved my young family of 6 down to Charlotte from the northeast, now over 20 years ago. Charlotte quickly became home to us and I wanted to create a website that would help individuals and families considering a move to Charlotte. I'm also the owner of The McDonald Group at eXp Realty (my day job) and have helped hundreds of folks relocate to Charlotte over the years.

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