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Dead Serious ABout Buying

Real Estate Agent with Sutton Group - West Coast Realty

Some people wrongly believe that there is no binding contract unless a deposit is paid when an offer is made. This is untrue. The three main requirements for a contract are offer, acceptance, and consideration. Consideration is something done or promised to be done by a party in return for something done or promised to be done by another party. In a contract of purchase and sale there is an exchange of promises. The seller promises to transfer title to the property to the buyer and the buyer promises to pay the purchase price to the seller. The exchange of promises serves as the consideration, not the deposit. Instead the deposit is good faith money. If the buyer defaults he may lose forfeit his or her deposit.

So why have a deposit then...well put yourself in a seller’s shoes. You are selling your home and hope to get  $700 000 for it. A buyer’s Realtor brings forward an offer which contains three components that communicate the attractiveness of the offer: the purchase price, the deposit size and perhaps most importantly the terms and conditions.

The price communicates how much they will pay, perhaps not in entirety yet as they will likely offer lower than the actual amount they are willing to pay. The purchase price, albeit the ‘big one’, should not be considered in isolation of the other two components. In fact one may accept a lower purchase than desired if the other two components are extremely appealing. In the end the price may not matter if the rest of the contract causes financial hardship, undue stress or a collapsed deal.

The second is the terms and conditions. This includes completion dates, possession dates, subjects, warranties, statements and inclusions or exclusions. Essentially this says what has to happen or has happened for the buyer to be willing to hand you the money for your property. I will write about this in my next post, as it is a complicated topic in the context I have placed it here.

Third is the deposit. This communicates their commitment to follow through on their promise to give you the full purchase price. Not that they won’t get their deposit back if they fail to follow through, it is rather difficult and expensive to pursue legal retention of the deposit as part of damages for breach of a contract. You can however tie the deposit up while you contemplate legal action (and the costs that go with it) by not signing the release until you have sought legal advice and decided. The bigger the deposit the more likely the buyer is dead serious about buying your property.

As a buyer what size deposit should you offer? The ‘old school’ in this business still hangs onto the 5% rule. In our market 5% may seem like a lot when properties are averaging 500K plus; of course with the mortgage guidelines changing to require a 5% down payment the money will be on hand anyways. If you are not comfortable with 5% I suggest 3% rounded to a whole number. For example if you are offering $700 000 then $20 000 should suffice, unless you want to improve the attractiveness of your offer. In the seller’s mind things could collapse right up to completion, give the seller as much peace of mind as you can and perhaps they will accept an offer a touch lower than they planned knowing they have a committed buyer.

My advice, be dead serious about the property you are buying and provide a healthy deposit.