Business Broker requiring earnest money deposit - Normal?

January 01, 2025

by a searcher from University of California, Santa Barbara in Carmel-By-The-Sea, CA 93923, USA

Hi All - After requesting a CIM from a larger broker I noticed in the CIM their offer process spells out they require an earnest money deposit of 10% of the sale price to release requested information for due diligence. It does state the earnest money goes into an escrow account and is fully refundable during due diligence. I mostly hear about brokers or others requesting a deposit when they come from the real estate world.

Is this unusual or since it's stated to be refundable, does it depend on the specific language?

Any thoughts on this would be appreciated, thanks all!

0 Likes

23 Replies

286 Views

Replies

Reply by an intermediary
in Campbell, CA, USA

We require earnest money deposits on smaller deals (<$1MM) on which we go directly to a purchase agreement with contingencies for due diligence, obtaining an acceptable lease, and financing. I like to get 10% split between two payments, the first at signing and the second upon opening escrow. On larger deals, where it is customary to entertain IOIs and LOIs, usually not, but I can imagine a situation where I might require a refundable earnest money deposit to weed out looky-loos and by refundable, I mean the buyer isn't responsible for liquidated damages. It is worth pointing out that in general, buyers on deals that are <$1MM are less experienced, less financially sound, and higher risk for the seller and an EMD helps to weed out people who aren't serious.

Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA

Fairly common in the <$2mm value range, its starts to fade out in the $2 mm to $5 mm range, and is VERY dependent on the buyer type. Established PEGs with portfolios and strategics generally are not asked for an EMD. The EMD should be in a trust and refundable during due diligence. And sorry to burst bubbles, but it has nothing to do with coming from real estate. And from the seller's perspective, if it makes sense in a real estate deal, it really makes sense in a business transaction when there is so much more more at risk. I can also share the the correlation between buyers that readily put up an EMD and close the transaction is very high, and when we are representing buyers, it is a great way to differentiate yourself from the rest of the pack.

+21 more replies.

Join the discussion