HOW TO JUSTIFY NON-REFUNDABLE DEPOSITS?

Question

Hey evet,

I'm at work and out of no where I had this thought. For a rent-to-own property, is a non-refundable deposit ok? Though the buyers are not obligated to buy the property at the end of the term, should the upfront deposit be refundable like a normal apartment rental or could it be different because it is a home and there's more responsibility and different mentality about the property. What are your thoughts? Thanks.

Wesley W. · Answer

The non-refundable payment is not unreasonable at all.  They are paying an option premium for the right (but not the obligation) to purchase that property from you for a set price within a given time period.  By accepting this premium, you are obligated to sell the property to the option payer under those conditions should they choose to exercise that option.

It's really no different than stock options.  In financial terms, you are "selling a call" to them.  Ask your broker if you get that money back if you decide not to exercise it in the future. ;)

Alex Franks · Answer

I'm the opposite. We buy a lot of deals here. So this month I am closing 14 deals. If all goes right. Still working on 8 of those. Keep in mind we look at a lot of deals. Yet most folks ( wholesalers still don't understand any numbers ) Most deals I want to physically walk and inspect my self.  So devils advocate here. When you send me numbers that don't really work. After I run my numbers. So I am supposed to lose my money. When folks don't know what they are selling. I heard it all from every angle. Maybe I see it different but minute you say nonrefundable. I usually become a - nonbuyer.

Just my two cents. Another deal I am closing units(cash offer 30 days or less )earnest money is $100 per contract.  Again two sides to every road.

Sincerely

Alex