Home Buying in San Diego>Question Details

Reta, Other/Just Looking in

What % of the offer price needs to accompany an offer for a home? investment property?

Asked by Reta, Sat May 10, 2008

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The earnest deposit indicates your commitment. I advise 1% of the purchase price.
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0 votes Thank Flag Link Tue May 13, 2008
I presume you are talking about the security or "initial deposit". If you are, read on. If you are asking what downpayment is needed to procure a loan for any particular piece of property, then submit a question specifically about that, and we will be happy to guide you.

Let's start with the contract. The California Residential Purchase Contract (RPA) allows the seller to potentially claim up to 3% of the purchase price for "liquidated damages." That is, if the buyer fails to abide by the terms of the contract, and in doing so "harms" the seller, the most the seller can claim as money damages is 3%. So, as a seller, you might want to see the buyer deposit as much as 3% of the purchase price.

But the buyer is not necessarily well served by offering 3%. Afterall, putting your hands on $15,000 as a deposit on the purchase of a $500,000 home, may not be feasible or prudent. Let's say an unforeseen event takes place on the 27th day of escrow, and you (the buyer) have to bail out of the contract. IF you have to forfeit some money, you want it to be the least amount possible.

Here's an idea, then. If you are well represented, have experience with home buying, and are conversant with the contract, its terms and contingency removals, AND IF YOU WANT TO LOOK GOOD TO THE SELLER, then offer a higher percentage. If, however, you have limited experience with contracts, are worried about your representation, and would't know a contigency if it hit you in the head, then think deposit on the low side.

Of course, experienced Realtors will have submitted many offers, know the approximate amounts of deposits being offered by agents in a particular area, and may be a source of help for you in this. Just remember that YOU, and YOU ALONE decide how much you are willing to risk in an attempt to garner and win any offer. The security deposit is not intended to threaten or punish any party to the contract who acts in good faith, follows the rules of the contract, and is honest. Hope this helps you, Loretta!
0 votes Thank Flag Link Sun May 11, 2008
Loretta,

Good question!

I would offer just enough to convince the sellers you are a serious buyer. Another strategy is to offer a smaller deposit up front, with a stipulated increased deposit at a later date.

Best wishes!

Roberta Murphy
760-402-9101
Villa Sotheby's International Realty
0 votes Thank Flag Link Sat May 10, 2008
Roberta Murp…, Real Estate Pro in San Diego, CA
MVP'08
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Loretta,
I can give you the names of Escrow officers that will hold money for deposits as Don suggests. Balance your desire for the home with your deposit. If you are just throwing out offers to see what happens (which I don't suggest), you don't want to tie up lots of cash for down payments. If,however, you are intending to occupy the home and want to make a statement, that you are a motivated buyer, then, by all means, put down more of a deposit. You may be asked for an increased deposit as a condition, if someone decides to accept your offer. You can find lots of useful buyer information on our site shown below.
0 votes Thank Flag Link Sat May 10, 2008
What percent "NEEDS to accompany an offer"? It can be as little as one dollar. The more the better, of course, but I know many investors who've bought property and only accompanied the offer with a hundred dollars or so. Better yet, the investors set up an account at a title company. They put $1,000 in it. Then they make an offer and state that the money is being held by the title company. That way, if the offer isn't accepted, they can immediately make a second offer, a third offer, etc.

The amount of earnest money expected varies by geographic area. Some places it's more, some it's less. But those guidelines tend to apply more to primary residences. You may hear numbers, for primary residences, of around 1%, but like I say that can vary. The more you include, the more seriously your offer is likely to be taken.

A Realtor familiar with San Diego investment properties should be able to help.

Good luck.
0 votes Thank Flag Link Sat May 10, 2008
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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