Buyer wants me to pay 10% down too him.

Real Estate Investor · Quinton, OK · Member since 2016 · 72 posts · 13 votes

I have a duplex that I am trying to buy for $125,000. I will be using traditional financing for the purchase. The seller wants me to give him 10% down and sign a contract. This is the first time I have run into a deal like this. Is this a common practice or should I run like crazy.

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Ben Zimmerman

Rental Property Investor · Raleigh, NC · Member since 2016 · 393 posts · 995 votes

10y

I would never sign a contract with having absolutely no outs unless the EM payment was of a trivial nature like $100. But a 10% EM, giving the money directly to him, and no outs?! Either he is crazy, or he thinks you're stupid. It just leaves too many things that can go wrong. Is this guy even the owner? Is this guy the sole owner or does his entire family own it together and the rest don't want to sell. Is it in a flood zone? What happens when the inspector gets in there and sees the foundation is crumbling? What if there are additional liens against the property that he didn't tell you about? What if.....?

I would renegotiate the contract terms, if he doesn't want to budge on the EM, then I would soft pass on the deal. Saying something along the lines of...

"Sir, as you know, buying a property takes much consideration, both from the buyer and from the seller. While I like your property and the asking price seems reasonable, the specific terms of the contract do not allow me room to conduct sufficient due diligence on the property. If you ever wish to renegotiate these specific items, me and my investment team will be willing to hear your terms. In the meantime I wish you the best of luck."

If the property hasn't sold in a few months (it won't), then give him a follow up phone call.

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
10y
10% earnest money deposit is certainly on the high side, but not unheard of in my market.
Make sure the contract protects your earnest money deposit with things like loan contingencies, appraisal contingencies, etc, and that escrow isn't with his Cousin Billy or something, but a legit firm.
1 Reply
Gary Dale McKee
OP
Real Estate Investor · Quinton, OK · Member since 2016 · 72 posts · 13 votes
10y
This just caught me off guard and wanna make sure this is a legit way to do the deal. I have an attorney looking over the contract to make sure it is what it says it is.
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Jim HoganPro Member
Investor · Malvern, PA · Member since 2014 · 108 posts · 42 votes
10y
Deposit money should be held by a neutral party like the title company if you are not using a realtor. Once the seller has your money and if you need to walk it will be harder to get your deposit back.
1 Reply
Dewain J.
Investor · Philadelphia, PA · Member since 2016 · 87 posts · 29 votes
10y
No way. Tell them you want a title company involved or some official entity to hold the money. If they say they have another buyer willing to do it, let them play the fool lol.
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Gary Dale McKee
OP
Real Estate Investor · Quinton, OK · Member since 2016 · 72 posts · 13 votes
10y
I am purchasing directly from the seller. What I gather out of the contract is if I do anything wrong he gets to keep the 10%. The only way I would get my money back would be if he doesn't want to sell for some reason.
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Account Closed
Investor · Buffalo, NY · Member since 2016 · 668 posts · 209 votes
10y
Neutral party (attorney or title company) holds the money with contingencies or no deal. @Chris Mason has it right. Good luck.
1 Reply
Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
10y
Originally posted by @Gary Dale McKee:

I am purchasing directly from the seller. What I gather out of the contract is if I do anything wrong he gets to keep the 10%. The only way I would get my money back would be if he doesn't want to sell for some reason.
As a random friendly person on the internet, I'm going to go ahead and just nuke that idea from orbit and say "nope."
Non-refundable non-contingent earnest money deposit of 10% is crazy.
In Texas, I'm given to understand that they have non-refundable "options" instead of earnest money deposits. Because of that non-refundable thing, it's like $250 or $650.
He's trying to mix the best of both -- non-refundable AND substantive. Nope nope nope. Pick one or the other buddy. Stacking a Texas style 'option' on top of a Bay Area EMD dollar amount is, to me, crazy.
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David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
10y
@Gary Dale McKee,
I'll second the "run" vote. The seller thinks he's got a newbie sucker on his line and thinks he's gonna make you swallow it hook, line and sinker.
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Gary Dale McKee
OP
Real Estate Investor · Quinton, OK · Member since 2016 · 72 posts · 13 votes
10y
This is what the contract says about the Non-Refundable Down Payment; The Non-Refundable Down Payment in the amount of 10% shall apply towards Buyers purchase price or closing cost. If buyer fails to fulfill his obligation under this real estate contract or buyer fails to close this transaction, the down payment is not refundable to the buyer unless failure to close is exclusively the fault of the seller of if seller cannot deliver marketable title to the property. Buyer warrants, represents and acknowledges the check tendered will be honored upon presentation to buyers bank, and presentation to buyers bank. Buyer understands that failure to tender down payment as required by paragraph 6 shall constitute a breach of this real estate contract. Down payment is tendered by buyers in form of check. If down payment is tendered by check, it will be made to selling firm.
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Joseph Pugliese
Real Estate Agent · Staten Island, NY · Member since 2015 · 64 posts · 21 votes
10y
I am a licensed associate broker in New York City, and in New York the attorneys for the seller and the buyer handles the contract negotiations. As a buyer any earnest money that you apply towards the purchase of the property should be held in escrow by the sellers attorney. This is the most common way it is conducted here in New York City
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Gary Dale McKee
OP
Real Estate Investor · Quinton, OK · Member since 2016 · 72 posts · 13 votes
10y
@David Dachtera, think you are right. But he forgot to take into account this awesome site and you awesome, knowledge, helpful folks.
1 Reply
Matthew Carducci
Investor · Charleston, SC · Member since 2016 · 87 posts · 14 votes
10y
🏃🏼 (this is me typing in a 'Run' emoji). So many good points already made above. I simply vote for you to run...run to the next deal.
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Greg H.Pro Member
Moderator
Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
10y
Originally posted by @Chris Mason:

Originally posted by @Gary Dale McKee:
I am purchasing directly from the seller. What I gather out of the contract is if I do anything wrong he gets to keep the 10%. The only way I would get my money back would be if he doesn't want to sell for some reason.
As a random friendly person on the internet, I'm going to go ahead and just nuke that idea from orbit and say "nope."
Non-refundable non-contingent earnest money deposit of 10% is crazy.
In Texas, I'm given to understand that they have non-refundable "options" instead of earnest money deposits. Because of that non-refundable thing, it's like $250 or $650.
He's trying to mix the best of both -- non-refundable AND substantive. Nope nope nope. Pick one or the other buddy. Stacking a Texas style 'option' on top of a Bay Area EMD dollar amount is, to me, crazy.
In Texas, we have earnest money in addition to an option fee. The option fee is basically $XX for XX days the buyer has the option to terminate the contract for any reason. This replaced the inspection contingency. A typical option fee would be $100 for 7 days. It would be rare to see a $250 option fee and I have never seen anything close to $650
To the OP, NEVER give earnest money directly to the seller. I believe that Oklahoma uses title companies and they should hold the earnest money
1 Reply
Zach SikesBusiness Member
Residential Real Estate Broker · Edmond, OK · Member since 2011 · 452 posts · 183 votes
10y
Are you using the OREC uniform contract of sale? 99 times out of 100 the earnest money is held by a third party. It sounds like he's taking away all of your contingencies.
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1 Reply
Ben Zimmerman
Rental Property Investor · Raleigh, NC · Member since 2016 · 393 posts · 995 votes
10y
I would never sign a contract with having absolutely no outs unless the EM payment was of a trivial nature like $100. But a 10% EM, giving the money directly to him, and no outs?! Either he is crazy, or he thinks you're stupid. It just leaves too many things that can go wrong. Is this guy even the owner? Is this guy the sole owner or does his entire family own it together and the rest don't want to sell. Is it in a flood zone? What happens when the inspector gets in there and sees the foundation is crumbling? What if there are additional liens against the property that he didn't tell you about? What if.....?
I would renegotiate the contract terms, if he doesn't want to budge on the EM, then I would soft pass on the deal. Saying something along the lines of...
"Sir, as you know, buying a property takes much consideration, both from the buyer and from the seller. While I like your property and the asking price seems reasonable, the specific terms of the contract do not allow me room to conduct sufficient due diligence on the property. If you ever wish to renegotiate these specific items, me and my investment team will be willing to hear your terms. In the meantime I wish you the best of luck."
If the property hasn't sold in a few months (it won't), then give him a follow up phone call.
3 Reply
Gary Dale McKee
OP
Real Estate Investor · Quinton, OK · Member since 2016 · 72 posts · 13 votes
10y
UPDATE: I renogiated the terms of the deal and got the seller to agree to a traditional deal. $1,500 earnest money, held by a 3rd party. I'm pretty pumped about my first deal and wanna thank everyone for their input.
2 Reply
David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
10y
@Gary Dale McKee,
Great! Good for you!
Now, make sure you have an attorney on your team who can keep this character in check. He's already shown his colors. Keep your guard up, and watch for ways he may try to bully you again.
0 Reply
Matthew Carducci
Investor · Charleston, SC · Member since 2016 · 87 posts · 14 votes
10y
Gary Dale McKee well done. Congrats. I'm pretty sure I enjoy the chase more than the finish line. It's a great feeling once you tie up a deal.
0 Reply
Gary Dale McKee
OP
Real Estate Investor · Quinton, OK · Member since 2016 · 72 posts · 13 votes
10y
@Matthew Carducci I'd have to agree with you. Now the work starts and a hole bunch of new stuff to learn.
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