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The reason for a buyer to pay deposit money is to keep the buyer honest in the deal.
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8 Comments on Deposit Money Keeps You Honest Buyer...My Builders Hold It And Use It!
Barbar - I have seen arrangements where the deposit was 15%, and 10% were held in Escrow and 5% the developer could use.
Anyway, if the developer would refuse changing his contract, it could mean no deal
Since contractor draws are based on the percentage completed, it really helps to have those deposits to meet payroll before the first draw!
When we were building homes for people with bank loans, the bank always wanted a sign-off from the materials suppliers stating that they'd been paid in full before they released the draw. Lucky for us, our suppliers knew they'd get paid when we did, so they signed off. That method made it pretty tough for small independent builders who were trying to get started and hadn't built a reputation with the suppliers.
Jon....I have some builders who WOULD lose the deal if they can't use the deposit...
Marte.... if the builder has $70k to $90k it certainly takes the edge off at the beginning..... the "vig" is high enough at the end of the deal, just before closing....
That was once the custom in Maryland. Builders deposited earnest money in their operating funds.
However, in the early 1990s when builders were dropping like flies, a number of buyers lost their earnest money. The state came down fairly hard on builders and require that the money be in a trust account.
Builders now use real estate licensees to hold earnest money in their trust account or use the title office.
Lenn....not many builders here require that they hold the deposit....most are worried about losing the deal if they ask for the deposit, so they don't....our builders will lose the deal if they can't hold and USE the money.... I think they may be spoiled!!! we haven't lost one yet.
Good to know - I have not seen new construction in South OC for such a long time I am not sure how it is even handled here!! But the deposit certainly demonstrates buyer commitment everywhere.
Good Afternoon Barbara, i have a builder who does this also. They make it clear they hold deposits and that it becomes not refundable once all committments are met and building starts on custom homes or finishing work starts on spec houses where they can choose kitchen cabinets, counters, fixtures, colors etc... Have a great Sunday
David.... it would be devastating to a builder to have a buyer default and be into the whole deal with borrowed money....
Scott.... hope they use the money and not just hold it....