When I was mulling over the offer, I was ready to up the asking price and the increased difference would go towards closings costs. However, my realtor did an analysis on what the other units in the complex sold for recently so we could make my offer comparable to those figures. My first offer was for $5,900 less than asking and seller would pay closing costs/prepaids up to $4,500. This represented a loss of $10,400 to the seller, so he countered with full asking price (no mention of the $4,500 in closings/prepaids). I agreed to full asking so long as he would pick up my closings and prepaids. Done deal.
I discovered this property while out with my realtor when I received an email on my phone notifying me it just hit the market that day. We were able to get the keys from the listing agent within 20 minutes and we were the first to see it and I loved it. The 5% down was, as others have surmised, probably gave the appearance of a strong offer to the seller, especially since the property was active for only a couple of hours and the seller figured he could unload the property quickly. As for the increased deposit, I spoke with the mortgage broker about it. She explained the whole money-in, money-out scenario in this initial process and that the overage would go towards closing costs, assuming they were not being picked up by the seller. However because they are, it is probable that no further funds are necessary for me to bring to the closing, so I would receive a check back for difference in what I deposited versus what was required as a deposit and any unused funds from the seller's contribution to my closings costs would be forfeited.
I will be hiring an attorney to go over the P&S and to represent my at closing per the suggestion of my realtor. I'm confident in my realtor and mortgage broker, both of whom I'm very please and fortunate to have working for me. If anything, I'm sure my attorney will be able to smooth out any wrinkles once the process goes to P&S.