The Pros and Cons of Proposing a Reduced Deposit to Your Real Estate Vendor

Purchasing a home is often an exciting prospect. However, the cost of buying a property can damper the enthusiasm of many buyers, particularly first-time purchasers. There are many costs involved in the successful purchase of a property and one of those costs is the deposit to your real estate vendor.  

Customary Deposit 

It is customary for a purchaser of real property to be required, by the contract, to provide the real estate vendor with a deposit. The deposit is usually 10% of the purchase price. This amount is customarily owed at the time the parties enter into the contract. The balance of the purchase price is owed upon the final sale of the property.  

Reduced Deposits Trending 

However, recently due to the increasing cost of housing purchases, some buyers are asking the seller to accept a lesser deposit; many are asking to put down 5% of the purchase price. If you are considering allowing a buyer to put down a 5% deposit, there are some things you should be aware of. 

As the buyer: Cons 

• The real estate vendor does not have to agree to take less than 10% as a deposit. 

• If you request to put down less than 10% and another potential buyer is willing to put down 10%, it is likely you will lose the contract to the buyer willing to put down the full amount of the customary deposit. 

As the buyer: Pros 

• Reducing the deposit to 5% might open up more purchasing options within your current price range. 

• If you reduce the deposit amount you might be able to afford a larger home i.e. if you cannot afford a 10% deposit on a $200,000.00 property with 4 bedrooms, reducing the deposit to 5% might open up this option for the buyer. 

As the real estate vendor: Cons 

•  If the contract indicates that in the event of the sale falling through, the prospective buyer will provide the seller with an additional 5% of the purchase price, this clause is not likely to be enforceable.  

• Accepting the lesser deposit might not be enough to cover the fees incurred prior to the sale falling through. 

 As the real estate vendor: Pros 

• Being willing to accept a lesser deposit might bring about more offers on the property. 

• Accepting a lesser deposit might allow the sale of the property to go through more quickly. 

• Accepting a lesser deposit might allow you to sell the property for a bit more, overall, i.e. if you list the property for $200,000.00 and expect a 10% deposit, that is $20,000.00. But if you list the property for $250,000.00 and expect a 5% deposit that is $12,500.00. As the seller you would take $7,500.00 less in the deposit but you would sell the property for $42,500.00 more than if you listed it at $200,000.00 and took a 10% deposit.  

While there is nothing that requires a property seller to reduce their deposit demand, it can be a lucrative way to go. There will be risks if the sale of the property is not completed, but there is the possibility of substantial gains, for both parties, if the real estate vendor is willing to take a lesser deposit.  

In the event that you find yourself in need of assistance, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.