Deposit on a cash offer?

31 Replies

I am about to make a cash offer for a SFH, my realtor insist that I still have to put at least 10% down ( he wants 20%) I said " why do i have to put anything down when we will be closing in 10 days on an all cash deal of $215k ? He insist you still have to put something down to show Im serious.

Is this normal? 

@Bob Romano I always advise my selling clients to require buyers to put 10% down in earnest money if it's a cash offer.  However, when I am working with buyers, it always depends upon the situation.  It's in their best interest to put less down, so that in the event that they end up walking due to whatever scenario comes up, it will be less painful for them if they have to lose that deposit.  So that being said, if it's a multiple offer situation, I always advise coming in with a very strong earnest money deposit.  If you make an identical offer to someone else and their deposit is lighter, then your offer is considered stronger.  If your offer is the same as another except for a difference in price, your deposit is $10,000 and theirs is $100, then your offer could be considered stronger by the seller because $100 deposit according to our local customs is laughable.  Which leads me to a question... what is customary in your local real estate market?  Only a local agent can advise you on that.

Hope this helps!

@Matthew Drouin Hi Matt, even if it is all cash? There is no other offer on the table . He had 6 open houses and no offers yet. Its been on the market for 70 days. 

This is one of those things that can vary based on the local norms, but - for what it's worth - I've always put down an EMD with my cash offers. In my opinion, it's one of those easy concessions in your favor that doesn't really cost you anything. For example, a $215k offer with 20% down can look more favorable/serious to some sellers than a $215k offer with 0% down. Yet even if you put the 20% down, it's not costing you any more. The bottom line is, if you know you're going to close with cash in 10 days, it doesn't really matter much if you put more down.

@Bob Romano , Most real estate contracts protect the buyer and their earnest money. Unless you are planning on getting out of the deal without reason it would make sense to put an EMD in to sweeten the deal. At the same time since there is essentially no interest in the subject property it is up to you and your realtor to determine a number that you are comfortable with. 5% still looks better than nothing. I agree with @Kyle J. though. If it is closing in 10 days anyways it shouldn't matter too much. Especially if you really want the property. 

@Bob Romano hey, if there's no competition, then just negotiate what you want then.  None of this stuff is set in stone.

Not only do you need a deposit, all cash offers should have significantly higher deposits than financed offers. A $25k deposit here would be appropriate.

Yep, we typically look for 10% EM on a cash deal, because hey, if you have the cash to close in 10 days, what does it matter. A cash buyer can walk away just like any other buyer.

@Bob Romano   Generally earnest money is required.  I have done deals without it but those were done without title companies, agents, surveyors, financing banks, liens or anything other than the signing of a deed and cashier's check.

Thanks for all the input guys , much appreciated! 

We insist here an EMD on the table with proof of funds, and a signed purchase contract. If your broker wants 10% you need to speedily hand over.

In the past, I have presented 100% down, proof of funds ready, 24 hour closing cash on homes and not all get accepted.

@Wayne Brooks Hi Wayne , the 10% would have to come from me, not the private lender. So i was just looking at not putting anything down so i didn't have to use any of my own money. 

100% of the time my cash offers require EMDs. Even the two week close offers require it. Back in CT it was provided with the signed contract/offer. Can your private lender give you the money? If not, why not?

@Bob Romano Well, there is the disconnect. Borrowing money from Any kind of lender is not a Cash offer, it is Financed offer. A cash offer means You already have the cash, in Your name in an account somewhere. Educated sellers, and agents, will also ask for a POF with a "cash" offer documenting You have yhe cash already in Your name.

Give them 10 or $15,000 earnest money and a proof of funds

Hi Bob, couple more things to add regarding your MLS activity...and maybe you've already thought of some of these:

  • Sounds like you are making offers through someone other than listing agent (L.A.).  From an investor perspective, making offers directly to the L.A. will lead to more flexible deals and larger price drops.  Leverage your realtor friends in other ways.  Think about it, if full offer is 100k, they split 6% so 3k each.  A 70k offer to listing agent who does both sides is a $4.2k payday..higher than if they sat around and waited for a full offer they need to split.  Also means more flexible with you overall because they have bigger paycheck and more direct negotiations.
  • Only offer once you know the seller story, how long on the market, original listing price.  For example, what if the seller story would open up the seller holding financing short (or long term).  You might not need to use all your cash do get that deal....so that affects your offer strategy. 
  • Your initial offer should ALWAYS get rejected...or you paid too much. This means you do seek counteroffers. So once you calculate your MAO, do not start with that...start with much less that will guarantee a no. Do this nicely.
  • When the counteroffers come back, your position is stronger.  Could be the counter offer was even less than what you were thinking about offering!  Also, from your position, you can add 'I really want to give you X, but we'll agree on Y as long as Z.  And Z can be any extra thing like extra inspection day etc.  including your piece on the deposit.  
  • The reason they want larger deposit is to figure out if you are solid.  How solid are you depends upon your strategy...are you just getting a contract to wholesale or do you intend to close?  If you intend to close and you are using cash, why is it taking 10 days?  If it's for title, then the contract is already protecting you and if not, you can put subject to clear title and final inspection.  Other than that, if you are on contract and intend to close, there should be no other reason for you to worry how much you put down (because if it is really for a real contractor inspection - then you should do that before you offer in the first place if you are buying for yourself - otherwise that is what the L.A. is trying to avoid, you locking something up and coming off when you find x thousand more damage you missed).  And if your intention is to wholesale and protect your deposit, then take care of that differently.  Tell them you'll place x deposit after your inspection period...and remind them that after inspection period only contingency is clear title.  Make sure your inspection period is therefore long enough to assign deal...and if not.....you get the idea.   Tell them all this as part of "Z" above in the negotiations.
  • But having said above about buying yourself versus wholesaling...irregardless of which, when you push off the counter, you can also tell the L.A. what you are putting up for deposit and if its been on the market a while, you are more likely to get your way, versus a listing out only 3 days. As a cash buyer myself (and wholesaler), I would never put up that much deposit if not needed to (again, it's relative to if I am keeping it and how long on market). And if the deal was not on the MLS but just normal seller, same thing..it all boils down to your relationship that you created from first phone call. When you've done that relationship and presence part well, and you tell the L.A. you'll take the deal and you are putting down, for example $1k or $5k or 5%, close in 10 days with only title contingency...they follow your lead..because they "feel" good about you. If they are worried and tell you only for 20%, you can respond in a nice way 'look I understand you want to see 20% so you know this is a real deal. I'm only putting up 5% and a 10 day close with no contingency (unless see above and you need the time to assign)..so run that past your seller and lets move forward, otherwise I'll withdraw my offer and buy something else.' Again..this is all relative to what you are really doing..and if you are really buying for yourself and really intend to close no matter what, then the contract is protecting you anyways and if they come back and refuse you, you can still say 'ok, on this one, we'll do it your way so you know I am real. But next time, you need to take my word or I'll move on...deal?'

Hope something in there helps..again...hard to go deep without better understanding if you are keeping for yourself, wholesaling, or cash is really not cash but private/hard lending.  All of that matters with how you really conduct the negotiations.  The big piece is to get to where you are primarily making offers directly yo the L.A. as that will clean up most of your resistance.

Originally posted by @Bob Romano :

I am about to make a cash offer for a SFH, my realtor insist that I still have to put at least 10% down ( he wants 20%) I said " why do i have to put anything down when we will be closing in 10 days on an all cash deal of $215k ? He insist you still have to put something down to show Im serious.

Is this normal? 

 Just put in a cash offer yesterday and listing agent was fine with 1k earnest money and proof of funds 

Have purchased 12 properties cash and never put more than 1 k earnest money

Originally posted by @Marc Imhof :

Hi Bob, couple more things to add regarding your MLS activity...and maybe you've already thought of some of these:

  • Sounds like you are making offers through someone other than listing agent (L.A.).  From an investor perspective, making offers directly to the L.A. will lead to more flexible deals and larger price drops.  Leverage your realtor friends in other ways.  Think about it, if full offer is 100k, they split 6% so 3k each.  A 70k offer to listing agent who does both sides is a $4.2k payday..higher than if they sat around and waited for a full offer they need to split.  Also means more flexible with you overall because they have bigger paycheck and more direct negotiations.
  • Only offer once you know the seller story, how long on the market, original listing price.  For example, what if the seller story would open up the seller holding financing short (or long term).  You might not need to use all your cash do get that deal....so that affects your offer strategy. 
  • Your initial offer should ALWAYS get rejected...or you paid too much. This means you do seek counteroffers. So once you calculate your MAO, do not start with that...start with much less that will guarantee a no. Do this nicely.
  • When the counteroffers come back, your position is stronger.  Could be the counter offer was even less than what you were thinking about offering!  Also, from your position, you can add 'I really want to give you X, but we'll agree on Y as long as Z.  And Z can be any extra thing like extra inspection day etc.  including your piece on the deposit.  
  • The reason they want larger deposit is to figure out if you are solid.  How solid are you depends upon your strategy...are you just getting a contract to wholesale or do you intend to close?  If you intend to close and you are using cash, why is it taking 10 days?  If it's for title, then the contract is already protecting you and if not, you can put subject to clear title and final inspection.  Other than that, if you are on contract and intend to close, there should be no other reason for you to worry how much you put down (because if it is really for a real contractor inspection - then you should do that before you offer in the first place if you are buying for yourself - otherwise that is what the L.A. is trying to avoid, you locking something up and coming off when you find x thousand more damage you missed).  And if your intention is to wholesale and protect your deposit, then take care of that differently.  Tell them you'll place x deposit after your inspection period...and remind them that after inspection period only contingency is clear title.  Make sure your inspection period is therefore long enough to assign deal...and if not.....you get the idea.   Tell them all this as part of "Z" above in the negotiations.
  • But having said above about buying yourself versus wholesaling...irregardless of which, when you push off the counter, you can also tell the L.A. what you are putting up for deposit and if its been on the market a while, you are more likely to get your way, versus a listing out only 3 days. As a cash buyer myself (and wholesaler), I would never put up that much deposit if not needed to (again, it's relative to if I am keeping it and how long on market). And if the deal was not on the MLS but just normal seller, same thing..it all boils down to your relationship that you created from first phone call. When you've done that relationship and presence part well, and you tell the L.A. you'll take the deal and you are putting down, for example $1k or $5k or 5%, close in 10 days with only title contingency...they follow your lead..because they "feel" good about you. If they are worried and tell you only for 20%, you can respond in a nice way 'look I understand you want to see 20% so you know this is a real deal. I'm only putting up 5% and a 10 day close with no contingency (unless see above and you need the time to assign)..so run that past your seller and lets move forward, otherwise I'll withdraw my offer and buy something else.' Again..this is all relative to what you are really doing..and if you are really buying for yourself and really intend to close no matter what, then the contract is protecting you anyways and if they come back and refuse you, you can still say 'ok, on this one, we'll do it your way so you know I am real. But next time, you need to take my word or I'll move on...deal?'

Hope something in there helps..again...hard to go deep without better understanding if you are keeping for yourself, wholesaling, or cash is really not cash but private/hard lending.  All of that matters with how you really conduct the negotiations.  The big piece is to get to where you are primarily making offers directly yo the L.A. as that will clean up most of your resistance.

 Yes yes yes

Go through the listing agent 

Originally posted by @Marc Imhof :

Hi Bob, couple more things to add regarding your MLS activity...and maybe you've already thought of some of these:

  • Sounds like you are making offers through someone other than listing agent (L.A.).  From an investor perspective, making offers directly to the L.A. will lead to more flexible deals and larger price drops.  Leverage your realtor friends in other ways.  Think about it, if full offer is 100k, they split 6% so 3k each.  A 70k offer to listing agent who does both sides is a $4.2k payday..higher than if they sat around and waited for a full offer they need to split.  Also means more flexible with you overall because they have bigger paycheck and more direct negotiations.
  • Only offer once you know the seller story, how long on the market, original listing price.  For example, what if the seller story would open up the seller holding financing short (or long term).  You might not need to use all your cash do get that deal....so that affects your offer strategy. 
  • Your initial offer should ALWAYS get rejected...or you paid too much. This means you do seek counteroffers. So once you calculate your MAO, do not start with that...start with much less that will guarantee a no. Do this nicely.
  • When the counteroffers come back, your position is stronger.  Could be the counter offer was even less than what you were thinking about offering!  Also, from your position, you can add 'I really want to give you X, but we'll agree on Y as long as Z.  And Z can be any extra thing like extra inspection day etc.  including your piece on the deposit.  
  • The reason they want larger deposit is to figure out if you are solid.  How solid are you depends upon your strategy...are you just getting a contract to wholesale or do you intend to close?  If you intend to close and you are using cash, why is it taking 10 days?  If it's for title, then the contract is already protecting you and if not, you can put subject to clear title and final inspection.  Other than that, if you are on contract and intend to close, there should be no other reason for you to worry how much you put down (because if it is really for a real contractor inspection - then you should do that before you offer in the first place if you are buying for yourself - otherwise that is what the L.A. is trying to avoid, you locking something up and coming off when you find x thousand more damage you missed).  And if your intention is to wholesale and protect your deposit, then take care of that differently.  Tell them you'll place x deposit after your inspection period...and remind them that after inspection period only contingency is clear title.  Make sure your inspection period is therefore long enough to assign deal...and if not.....you get the idea.   Tell them all this as part of "Z" above in the negotiations.
  • But having said above about buying yourself versus wholesaling...irregardless of which, when you push off the counter, you can also tell the L.A. what you are putting up for deposit and if its been on the market a while, you are more likely to get your way, versus a listing out only 3 days. As a cash buyer myself (and wholesaler), I would never put up that much deposit if not needed to (again, it's relative to if I am keeping it and how long on market). And if the deal was not on the MLS but just normal seller, same thing..it all boils down to your relationship that you created from first phone call. When you've done that relationship and presence part well, and you tell the L.A. you'll take the deal and you are putting down, for example $1k or $5k or 5%, close in 10 days with only title contingency...they follow your lead..because they "feel" good about you. If they are worried and tell you only for 20%, you can respond in a nice way 'look I understand you want to see 20% so you know this is a real deal. I'm only putting up 5% and a 10 day close with no contingency (unless see above and you need the time to assign)..so run that past your seller and lets move forward, otherwise I'll withdraw my offer and buy something else.' Again..this is all relative to what you are really doing..and if you are really buying for yourself and really intend to close no matter what, then the contract is protecting you anyways and if they come back and refuse you, you can still say 'ok, on this one, we'll do it your way so you know I am real. But next time, you need to take my word or I'll move on...deal?'

Hope something in there helps..again...hard to go deep without better understanding if you are keeping for yourself, wholesaling, or cash is really not cash but private/hard lending.  All of that matters with how you really conduct the negotiations.  The big piece is to get to where you are primarily making offers directly yo the L.A. as that will clean up most of your resistance.

 I do not agree you want your inital offer rejected

I have offered full price knowing the listing has not even hit MLS and it was way under priced

Offer was accepted and I was VERY happy as the day I was looking 9 cars drive down the drive to look at the house because the sign had gone up the day before 

@Michael Plante ..Hi..its relative to listing age and your relationship and your strategy (I brought it up here because if he is making offer and it is on the market already 50 days and already dropping etc..then absolutely must get rejected first in order to know where the bottom is..and that is why I said nicely too!).  There have been steals that were priced wrong that the only way to get is to go OVER and there is sufficient meat on the bone and area is prime.  I love the aged listings for this reason, the euphoria is over and they are pleading for something to go to owner with and justify.  The concept of first offer rejected absolutely applies when dealing one-on-one with owners where you create & control the environment.

Originally posted by @Marc Imhof :

@Michael Plante ..Hi..its relative to listing age and your relationship and your strategy (I brought it up here because if he is making offer and it is on the market already 50 days and already dropping etc..then absolutely must get rejected first in order to know where the bottom is..and that is why I said nicely too!). There have been steals that were priced wrong that the only way to get is to go OVER and there is sufficient meat on the bone and area is prime. I love the aged listings for this reason, the euphoria is over and they are pleading for something to go to owner with and justify. The concept of first offer rejected absolutely applies when dealing one-on-one with owners where you create & control the environment. Michael, if you ever get owner/seller leads (non-MLS) you pass on, please run them pass me, add me to your list. And if you wholesale as well, add me to your list!

 Thank yuh for the detailed reply

Much appreciated

Actually I am in the dark ages when it comes to deals. 

I just hit Zillow and realtor app every day and love driving around

The one I mentioned we put an offer in yesterday we happened to see the sign, call the listing agent and found out it was going MLS today

Put offer in a d just found out 5 minutes ago it was accepted 

Thanks to you I am now wondering did I pay too much. 

Darn you lol. Just kidding 

It's my realtor ( the buyer agent) that said I have to put a deposit up. So your saying I should of just called the listing agent and put the offer in directly? I went thru my agent simply because the seller pays him , and I didn't want him to get mad that I didn't use him, am I missing something? 

@Michael Plante thanks mike. Yes I intend on holding the property for 2 years and then refi to cash out my hard lender. 

@Bob Romano a cash offer means YOU have the cash to close the deal.  Hard money and private money are NOT cash offers.  Write your offer as financed.  Normally you'd need a pre-approval letter from the lender.  With a private lender you may also need proof of funds from the private lender.  Proof of funds is not some letter off the internet.   Its a bank statement in your or your lenders name showing you have the cash.

All that said, your buyer's agent should not be the one dictating terms.  If you want a $1000 EM, go with that.  Let the seller or their agent push back.  Unless you buyer's agent already has info from the sellers agent that a cash offer with small EM will be rejected.  But, again, you're not making a cash offer.

Whether or not you can bypass your agent depends on the deal you have with them.  I've used agents with a non-exclusive agreement that said they only got paid for deals they brought me.  If I found a deal by another route, they didn't get involved and didn't get a commission on that deal.  If you are dealing with a more traditional buyers agent, though, you may well have an exclusive agreement where the buyer's agent gets paid whether its their deal or not.

Originally posted by @Bob Romano :

It's my realtor ( the buyer agent) that said I have to put a deposit up. So your saying I should of just called the listing agent and put the offer in directly? I went thru my agent simply because the seller pays him , and I didn't want him to get mad that I didn't use him, am I missing something? 

 I do understand your thoughts and feeling about ‘going around’  your agent

If your agent brings you GREAT deals which you buy I would say stay with them

BUT if you are finding the deals go through the listing agent 

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