This is probably a stupid question but I just want to be sure

Regarding the structure of a typical mobile home park purchase…If I am the potential buyer, is it standard to put the down-payment money down first and THEN start doing the due diligence or are you supposed to do your due diligence FIRST then if everything pans out, pay the down-payment at closing and move forward with the deal? I know when purchasing single family homes I usually just sign contract and put down a small amount of money in escrow and I never move forward with paying a downpayment until all of my due diligence is complete and I approve of the property.

The only things you should be paying up front is your earnest money and option fee…

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You should never pay anything in advance except the refundable earnest money (which is held at a title company and refunded to you if you cancel during the due diligence period), any amounts required by law to “bind” the contract (in some states $100 for example) and then any third party report costs that come up during diligence (like a Phase I for example). We don’t normally do a Phase I until every other large deal killer has checked out, so you can normally basically get in and out of a deal – during the diligence period – for between nothing and $100 or so.

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Thanks guys! @frankrolfe I bought your Due Diligence manual last week and have been reading it. What a great read. I’m only at day 3 but so far it’s answered a lot of questions I had already. I’ll try not to be an annoying pain on here by asking a billion questions, I totally respect your personal time and thank you for taking the time to answer my questions so far.

Thanks @jhutson! That makes sense.

There are no dumb or annoying questions in mobile home park land. It’s as foreign to most people as learning a new language. That’s why everyone on this Forum is so nice – they’ve all had to learn that language and know how hard it is to master.

Very cool, thank you Frank.

@frankrolfe wouldn’t scare the seller away if you put low earnest money deposit?

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Some Sellers (or even their Realtor) try to push a large Earnest money, but I usually explain it doesn’t matter if it’s $10.00 or $10,000.00 since you have the unrestricted right to back out during your feasibility period.

I don’t think Frank counts the Earnest money towards the $0 to $100 dollars since it’s not “spent” and applies to Closing if you get that far, and if not then it’s right back in your pocket.

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@jhutson It makes sense. Thank you for the explanation.

@DPW , as per your question:

  • “When to pay the Down Payment?”

As a Licensed South Carolina Real Estate Broker-In-Charge and Realtor the Down Payment is to be paid at closing only.

When presenting an offer, you will only want to pay Earnest Money (as small an amount as possible).

You will also want an offer to have lots and lots of Contingencies for you (lots and lots of ways for you to legally get out of the contract and get your Earnest Money back).

Some of the Contingencies could be:

  • Contingent On: Legally Zoned Mobile Home Park
  • Contingent On: Financing
  • Contingent On: Due Diligence
  • Contingent On: Total # Of Lot = To ____
  • Contingent On: City Water
  • Contingent On: City Sewer
  • Contingent On: Total # Of MHs = To ____

We wish you the very best!

Thank you @Kristin! Great info :smile:

Boy, do I agree with Hutson. Earnest money seems just worthless to me. My park’s on the market right now, and I’ll ask the potential buyer for a nickel earnest money (ok, kidding). But why not? The buyer can get his money back for any reason, or no reason. It seems just completely worthless to me. Except maybe the escrow company; they can get a bit of interest on it while they’re holding it, I suppose. Other than that…

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To be ernest shows a serious intent.
In other words don’t waste my time if you are not serious about perusing the purchase of my property. To move forward you will need to put down some cold hard cash. If you back out, other than for one of the conditions in the offer, you will forfeit the money.

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@DPW , you are very welcome.

I agree with Greg’s (@Greg) statement:

  • “To be earnest shows a serious intent.”

As per the definition of Earnest:

  • “resulting from or showing sincere and intense conviction.”

As a Seller you want the Potential Buyer to sincerely be pursuing your property. You do not want the Potential Buyer out there with multiple Offers. You want them solely focused on your deal.

Thus, as a Seller you want the “Highest Amount” of Earnest Money.

If a Potential Buyer goes through all the Contingency Deadlines and then later decides to pull the deal, that is when the Seller gets to keep the Earnest Money.

Earnest Money is a sort of “compensation” to the Seller for keeping their property tied up with a Potential Buyer.

Most Potential Buyers will not look at a property once it is Ratified with a Contract (unless it is a smoking hot deal).

However, you want to do what is in your best interest.

Thus, as a Potential Buyer you want to put the “Lowest Amount” of Earnest Money on the table with lots and lots of Contingencies.

A Real Estate Agreement between a Seller and Buyer is basically a “compromise on both sides”.

Thus, it is extremely important to know your limits before negotiating a Real Estate Agreement.

Once you reach your limits in a Real Estate Agreement be willing to walk away as there will be another deal around the corner.

We wish you the very best!

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Thank you everyone for your input on this topic and Merry Christmas!

Well, sure, if the buyer backs out AFTER the due diligence deadline, he’ll lose the money. But before the deadline he can pull out and suffer no financial loss whatsoever. I’d rather have $500 non-refundable earnest money, than $500,000 refundable.

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Regarding your question,
NO you don’t put up your “DOWN PAYMENT” First! then do due diligence.
YES , you do get a contract , open escrow and put into escrow as “GOOD FAITH” your “GOOD FAITH” deposit.
This can vary as stated above. BUT there is something to remember! IF there are no other offers on this property, YES you put up as little as possible. 1k, 5k ,10k. just depends on the price of the park and if a broker is representing the seller. A lot of escrows will not open escrow without a minimum 1k "Good Faith"
You have to remember that these monies are just sitting there and IS "TECHNICALLY used as part of your downpayment and closing costs when you do move forward and complete the transaction.
IF you do not LIFT “ALL CONTINGENCIES " and you have a legitimate reason for backing out of the transaction, it is 100% refundable. There will be times that the seller will not sign the release because they feel that they were screwed and they will take you to mediation and arbitration to fight for the deposit.
Both sides will have to pay for the fees to arbitrate. In California the fees are like 2300 per side.
This is why some like to do say the minimum of 1k , this way if it goes that far, you can just say “KEEP IT"
its not worth it. Since you will also need an attorney. One never knows the outcome once you get to arbitration. The only winner is the attorney for his time.
NOW, Again lets talk about if there a multiple offers.
I WIN DEAL AFTER DEAL on my day job of House Flipping because I will put the FULL PURCHASE PRICE as my “GOOD FAITH”. This shows that I’m mucho serious. ALSO, I know if something happens the most a seller can keep in California is 3% of the purchase price of my “GOOD FAITH”.
I never backout AFTER CONTINGENCIES ARE LIFTED. AS a seller can actually keep my 3% and go after me if he sells It for less money then he had me under contract for.
MANY MANY things can happen in a real estate deal , so make sure you are represented by someone who knows the business and knows the laws of your state.
Don’t be like most people who think” I cant do it myself” You may get lucky thru your deals but they can also go really bad. And its always nice to have a Broker who has E&O insurance and a “BROKERS ATTORNEY” if you do need one, on their dime not yours. ALOT of times sellers will pay a commission, if not get an agent and offer to pay them 1% or even 2% out of your pocket. IF your paying 400k , whats a measely 4k-8k to have another set of eyes and help.

Just my opinion.
Good luck in your purchases.
just be carefull.

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Thanks @Troutt! Great info!