Questions About Today’s Real Estate? Ask Phyllis!

Buyers with small down payments

Dear Phyllis,

I have been following your column for years and don’t believe you have previously discussed this particular scenario. In January of this year, I closed escrow. When reviewing the eleven offers, my agent pressured me to accept a lower offer because another buyer’s down payment was substantially larger. The highest offer I received was making a 5% down payment. I heeded my agent’s advice and accepted the request with the larger down payment. It was $10,000 less than the highest offer. I now wonder if I should have gone for the money. Bill R.


Dear Bill,

It’s difficult to assess your situation and answer your question without knowing the exact particulars of your escrow. However, your real estate agent likely gave you very sound advice. There are several issues to consider:

Was there an appraisal contingency with either offer? As you closed before the market adjusted, your agent might have been concerned that there would be another negotiation if the home did not appraise for the selling price. In the minor down payment scenario, note that banks lend up to 95% of the appraised value or purchase price, whichever is less. 

Let’s assume a purchase price of $1,000,000. If the appraiser were to value your home for just $975,000, to obtain the loan, the buyer would need to increase his down payment from $50,000 to $73,750. The buyer with just 5% down may not have had the funds to increase the down payment.

Another aspect to consider is whether the buyer with the smaller down payment has a substantial amount of money remaining after they close escrow. If the buyer does not have a hefty cash reserve after closing, every defect on their home inspection will be significant. They won’t have the funds to correct them. In my experience, the larger the buyer’s down payment, the less apt they are to be as alarmed by the inspection report. 

It’s highly likely that had you not accepted the offer your real estate agent recommended; there would have been a negotiation for either the appraisal or inspection issues. 

Congratulations on your successful sale!