Carlsbad Real Estate News and Views: Buyer FAQ - What is a Deposit & How Much Should I Submit with my Offer

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Buyer FAQ - What is a Deposit & How Much Should I Submit with my Offer

Buyer FAQ - What is a Deposit and

How Much Should I Submit with my Offer?

 

An important decision you need to make when submitting an offer is the amount of the initial deposit, and something you must know about how to buy a house.

 

 

While it might not rank up there with the matter of the offering price itself, the deposit is an important component of an effective offer.

 

 

deposit Here in Southern California while we commonly refer to the amount submitted with an offer (more on the logistics shortly) as a deposit, you will also hear this referred to as Earnest Money or an Earnest Deposit (EMD), and sometimes a Good Faith Deposit in different areas or other parts of the country. As this implies, the deposit is a show by you of good faith and interest in the property you are offering on.

 

 

Logistics first!

 

 

The deposit is part of your total down payment, not an additional amount as some buyers think. Let’s say you are using a loan for your purchase and are putting down a total of 20% in cash, thus obtaining a loan for 80% of the purchase price. Your deposit, depending on the amount you decide, is part of that 20%.

 

 

Carlsbad homeOnce you have an agreed-upon contract with the seller, our California contract stipulates that the deposit is due within 3 business days to the escrow company, unless otherwise negotiated, who will hold those funds until closing.

 

 

Commonly those funds are wired since it’s faster and more secure, but some buyers will submit a check. Just be sure those funds are in your bank account and available!

 

 

Now for the amount of your deposit.

 

 

I’m not going to tell you what that deposit amount should be, but suggest you talk with your Realtor, for a number of reasons. The deposit amount can vary quite a bit depending on the market you are in (e.g., a very strong sellers’ market with bidding wars might suggest a very strong deposit, outside the norm) and common practices in the area, and even the price range.

 

 

You certainly want to be competitive and show the seller you are truly interested in the property – a strong deposit will show your good faith and interest, while a low deposit will reflect badly on your overall offer. In our area we commonly see deposits in the range of at least 1% of the purchase price to 3%, or more (and thus with an expensive home the deposit can be pretty substantial.

 

 

There is no requirement, of course, but again advice from your agent and your goal of making a strong offer will guide you in determining how much the deposit should be. And in a counter offer situation, especially with multiple offers, some sellers may request a stronger deposit from you, and it will be in your best interest to do so.

 

 

Do NOT underestimate the value, and importance, of a strong deposit when making an offer. This is not the time to be cheap.

 

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Comment balloon 11 commentsJeff Dowler • June 12 2017 07:17PM

Comments

Hi Jeff, excellent post. Escrow deposit shows how motivated the buyers are, larger deposit sends the right message. 

Posted by Beth Atalay, Cam Realty of Clermont FL (Cam Realty and Property Management) 15 days ago

Hi Jeff... and a lot also depends on local custom. In NYC the earnest money was always at least 10% of purchase price. Here in Charlotte it's only about 1%. And as we are a due diligence state, I care a lot more about the amount of due diligence that a buyer offers than the earnest money because that's the money they stand to lose if they don't go through with the contract.

Posted by Nina Hollander, Your Charlotte/Waxhaw/Fort Mill Area Realtor (RE/MAX Executive | Charlotte, NC) 15 days ago

This is good advice for buyers.  They need to show that they are serious with their offer.

Posted by Belinda Spillman, Colorado Living! (Aspen Lane Real Estate Colorful Colorado) 15 days ago

Jeff here in CT the EMD is always by check, and our EMD amounts range close to the 1% to 3% range like yours.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) 15 days ago

Hi Jeff -- you're right the discussion of the earnest money deposit can be a bit confusing especially to first time buyers.   The importance of choosing knowledgeable local real estate representation cannot be emphasized enough.  

Posted by Michael Jacobs, Los Angeles Pasadena Area Real Estate 818.516.4393 (Coldwell Banker Residential Brokerage) 15 days ago

I have learned why not give the full amount in the earnest money deposit when making the offer instead of doing it in small amounts increments Jeff Dowler .. but then again it may depend on the price of the house and how much money is available to the buyer -- it does  depend where and what type of market 

Posted by Hannah Williams, Expertise NE Philadelphia & Bucks 215-953-8818 (Re/Max Eastern inc.) 15 days ago

Hi Beth Atalay  - thanks. I find some buyers don't really understand the purpose of the deposit and try to be cheap about it.

Excellent points Nina Hollander 

The deposit can send a powerful message Belinda Spillman 

Jeff

Posted by Jeff Dowler, The Southern California Relocation Dude - Carlsbad (Solutions Real Estate ) 15 days ago

George Souto  - I suspect they vary all over the place depending on market, custom, etc.

True is both cases Michael Jacobs 

Making a strong deposit is important Hannah Williams

Jeff

Posted by Jeff Dowler, The Southern California Relocation Dude - Carlsbad (Solutions Real Estate ) 15 days ago

Jeff, you're right - the deposit is not a time to be cheap. Sellers really like to see a healthy sized deposit. Excellent post!

Posted by Amanda S. Davidson, Your Alexandria Virginia Real Estate Agent (Amanda Davidson Real Estate Group) 15 days ago

I see more arguments about this than almost anything in terms of what is the right amount. When people here say 1% I remind them that customary doesn't mean law.

Posted by Joe Pryor, REALTOR® - Oklahoma Investment Properties (The Virtual Real Estate Team) 14 days ago

Hi Jeff-It is clear that buyers, especially anyone new to an area or first time buyers need to know what is customary for that particular area. And, all buyers would do well to hire a knowledgeable local agent who can guide them in this. If you want the house, you have to be willing to play by the current and local rules 

Posted by Kathy Streib, Home Stager - Palm Beach County,FL -561-914-6224 (Room Service Home Staging) 14 days ago

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