Did you know that you can buy a property for no money upfront in British Columbia?
With that said, a potential real estate Buyer should not expect that a Seller will consider an offer to purchase with no deposit attached an offer worthy of serious consideration. What Seller would be willing to take their house off of the market, potentially purchase another home, all the while relying on a Buyer with no skin in the game? Their REALTOR® would surely advise them against this.
The size of the deposit can be a crucial part of the negotiation process. In a hot market, where multiple offers may come into play, the deposit can become one of the top three points of negotiation. The three points of negotiating being:
- Closing date
There is no standard or set amount and the amount of a deposit will vary from property to property and even region to region. Regardless of overall market conditions, if a property generates a lot of interest, a Buyer may use a bigger deposit to reflect their stronger, more serious interest.
A larger deposit can even be a way to lessen the blow of longer closing dates or ‘extra’ time to remove subjects. If a long close is preferred by the potential Buyer or if the list of conditions is long and may require some extra time to fulfill, the size of the deposit, in good faith, should prudently increase.
It is ultimately up to the two primary parties involved in the purchase and sale to decide and agree upon a suitable deposit amount. The Buyer and the Seller decide, through negotiations, how much is enough and can even negotiate a series of deposits at different stages of the Contract. For example, $3000.00 within 24 hours of acceptance; increased to $10,000.00 upon Subject removal.
Where does the money go?
On the face of it, it would seem as though that for the Buyer, a smaller deposit would be preferable. The monies (their money) are held in Trust by the Buyer’s Brokerage, to nobody’s benefit, for the duration of the period from acceptance to Completion when it will form part of the purchase price. In most cases, unless otherwise arranged for in the contract, interest is not accrued. The money is essentially tied up.
Deposits and unconditional contracts
It is worthwhile mentioning here that if an unconditional Contract is being voided, in order for the Brokerage to return the funds to the Buyer, all parties to the contact must agree and sign a General Release. While this may seem like a small distinction, knowing and understanding this in advance can save some frustration. In particular if you, as the Buyer, find another house and need the funds for a new deposit.
The deposit (and its size) becomes especially important to a Seller if a deal does not close as expected. While this happens rarely in our market, life is full of unforeseen circumstances and if a Buyer is unable or unwilling to complete on their purchase, they will most often forfeit their deposit. Here, the deposit serves its purpose: The Seller is compensated for the time and potential opportunity lost while they were under contract. As you can well imagine, under this circumstance, size does matter and bigger is better.
Purchase deposit amounts. Is bigger better?
When it comes to real estate negotiations, the deposit is indicative of a potential Buyer’s level of interest and their commitment to the offer is reflected its size. The deposit ultimately forms part of the purchase price so if you’ve got it available, why not put your best foot forward and, in this hot market, impress a Seller with a healthy deposit! [su_divider]
If you have more questions regarding purchase deposit amounts contact Karen.