Deposits: An important aspect of a property sale

In today’s property market it is common practise for a deposit to be made when the buyer provides the seller with an offer to purchase. 

“In most cases,” says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, “an agreement is reached between the parties that involves an agreed upon deposit amount to be paid on either the signing of the agreement or alternatively, at a later specified date.”

He notes that while the inclusion and payment of a deposit is recommended, it is not compulsory to make the offer to purchase a binding, legal document between the two parties. “In the current market we have seen most agreements call for a deposit of around 10% of the purchase price, however, with the guidance of a real estate professional, this amount can be negotiated and an amount can be agreed on that suits both the buyer and seller,” says Goslett.

So what happens in the case where the buyer, for whatever reason, is unable to pay the agreed upon deposit? Does the deal fall through?  According to Goslett, the short answer is yes it can. “If the offer to purchase stipulates that the buyer is to pay a deposit and they do not, they are in breach of the contract and the seller has the right to cancel the deal.  A deposit is paid to show that the buyer is committed to the deal and is financially able to stand up to their end of the agreement – it is a show of goodwill on the buyer’s part. Payment of a deposit will prevent the seller from cancelling the contract, so it is in the best interests of the buyer to ensure that they are able to pay the agreed upon amount,” advises Goslett.

According to Goslett, the payment of a deposit will also protect the seller as a buyer will be less likely to breach the contract if they know that they could forgo their paid deposit. If the buyer does breach the contract and the breach is not rectified within certain time frame, the seller is within their right to keep the deposit to cover any damages they may have sustained as a result of the loss of the deal. In the case where the deposit does not fully cover the damages, the seller could proceed with legal action against the buyer in order to recover their losses.

Goslett says that it is never recommendable for the deposit to be paid directly to the seller. “The buyer has the option to pay the deposit to either the conveyancing attorney, who has been appointed to handle the transfer of ownership, or to the real estate agency negotiating the deal, provided they have the correct set-up to take deposit payments. The deposit should be held in an interest-bearing trust account where it will be protected and earn interest until the transfer of ownership goes through. While both of these options will incur a marginal administration fee that will be deducted from the interest earned and not the capital investment, it is a small price to pay to ensure that the deposit amount is safe and secure,” he advises.

According to Goslett, a buyer will often enter into an offer to purchase with a condition that the offer is subject to their bond approval. If this is the case and the buyer has paid a deposit, the full deposit will be refunded to them if their finance is not approved. “However,” Goslett says, “in the instance where the buyer has deliberately withdrawn their bond application or has failed to co-operate with their lender which results in them not receiving approval – they could find themselves in breach and could possibly risk losing their deposit.”

Goslett concludes by saying that paying a deposit will help to ensure that both parties honour the agreement of the offer to purchase. A deposit is an excellent way to show goodwill and secure the property sales agreement.

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