Key Insight
A deposit turns an LOI from a letter of interest into a real commitment. Sellers who've been burned by tire-kickers use deposit requirements to filter buyers who are actually willing to put skin in the game.
Typical Structure
- Amount: $10,000–$50,000, depending on deal size. For a $1M deal, $25,000–$50,000 is common.
- Held in escrow: Usually held by the business broker or an escrow agent, not released directly to the seller.
- Refundable period: Fully refundable during the due diligence period if the buyer terminates for any reason (or for material discovery reasons even after the refund window).
- Forfeiture trigger: If the buyer withdraws without cause after due diligence is substantially complete, the deposit may be forfeited to the seller as liquidated damages.
Deposit vs. Earnest Money
- LOI deposit: Paid at LOI signing, before due diligence. Signals intent to proceed.
- Earnest money / closing deposit: Paid when the definitive purchase agreement is signed (post-LOI), credited against the purchase price at closing.
These are sometimes the same instrument — in simpler deals, one deposit serves both functions.
Negotiating the Deposit
Sellers prefer:
- Larger amounts (more skin in the game)
- Short or no refund window
- Clear forfeiture conditions
Buyers prefer:
- Smaller amounts
- Full refundability through the end of due diligence
- Specific enumerated grounds for forfeiture only
Experienced buyers will hold firm on full refundability through due diligence — a deposit that constrains your ability to walk on findings defeats its purpose.
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