Seasoned investor looking for advice

[Bernard Sims]

I have been a serious investor for about 2.5 years now. Closed on 8 deals (49 doors) mostly multi-family. In all this time I've never been faced wth the following situation and wanted some extra opinions on the matter.

Im about to put an offer on 2 commericial properties. One is a 20 unit and the other is a 12 unit. (Same seller) The seller is requesting WITH the submitted offer that the buyer wires 10% of the offer amount to the seller's attorney to hold while the negotiations takes place. Then if an agreement is made and offer accepted, the 10% goes toward the earnest money. There is a contract that details if the offer is not accepted or if the buyer decides not to purchase during the feasibility period that the money is refunded. In all my history of investing, I've never had a seller make a request like this. Have anyone dealt with a situation like this before? Is it common in some areas. The seller and attorney are in Florida, but the properties are in Texas.

[John Barrows]

I've sold plenty of commercial property in my 30 years. NOT ONCE, have I allowed any seller to hold EM's from any buyer! That in and of itself is a ludicrous position for everyone! That move is easily a law suit waiting to happen.

1. The seller (for no reason) will hold on to the EM! If so, then you have a fight on your hands! What is your fiduciary duty to your buyer or yourself? You'll serve as your own agent now that you are purchasing the properties?!  ARMS LENGTH TRANSACTION and ALWAYS USE A THIRD PARTY ESCROW! 

2. If you are the buyer or buyers agent, you should already have a PROOF OF DEPOSITS, especially if its yourself or someone you've worked with over the years.

3. Never put more than 3% down on any transaction, especially if it is millions of dollars for the properties. Most generally my rule of thumb is 100k-500K,2% TO 3%, 501K TO 1 MILLION, 1% TO 2% OVER A MILLION PLUS generally 1% with solid Proof of Deposits..

NEVER, put any money in the sellers hands because it can and most generally will become hard to get the seller to release the money! Most generally, the seller feels betrayed by you or the buyer you're representing for pulling out of the deal and will want some sort of reimbursement for having the property off the market. 

Now, if you're going to do a long close like buying land for development, or a huge apartment development you may want to calm the seller by putting up a $5000 non-refundable fee for allowing you to take "MONTHS" to conduct your due diligence with the city, permits departments and the like. That's reasonable and I've done that in the past.