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.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 21 Jun 2018
      Anyone who’s ever been involved in a building project that’s gone wrong will appreciate the importance of adequate insurance cover in the construction industry.
    • 21 Jun 2018
      A recent news story about a blind tenant caught in a legal battle with his body corporate over letters and notices he was unable to read and consequently comply with has raised the question: what are the legal obligations for landlords with disabled tenants?
    • 21 Jun 2018
      A trend that’s taken the world by storm in recent years is that of hygge (pronounced: hue-guh), a Danish concept that is about creating intimacy, connecting with loved ones and taking pleasure in small, ordinary things.
    • 20 Jun 2018
      Buying or selling real estate isn’t as easy as it is portrayed sometimes, especially if there is a death of a party during the transaction which can make it awkward, tricky and inconvenient.
    • 20 Jun 2018
      With interest rates remaining at historic lows and banks continuing to compete for mortgage finance business, first-time buyers with funds at their disposal are currently well-placed to gain that initial foothold on the property ladder, particularly in the light of the slightly lower growth rates currently experienced in residential property values.
    • 20 Jun 2018
      The average size of bond granted in SA has grown 7,7% in the past 12 months to R934 000, according to BetterBond, the country’s biggest bond originator.
    • 19 Jun 2018
      In the current market, letting out a property can be a good option as rental demand remains strong, especially in the northern suburbs of Johannesburg. This is according to Chris Renecle, MD of Renprop. However he says that before homeowners let their property out, there are five key points they should make sure are covered before they market the property for rent and sign any lease agreements.
    • 19 Jun 2018
      The Capetonian dream is to live by the ocean with the iconic mountain making an appearance somewhere in the horizon. But, that dream comes with a hefty price tag that many simply cannot afford. But, should you venture some kilometres out of the city centre, entirely new realms of beachside bliss await you …
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us