The Misconception on Deposits
Picture this; you and your partner have outgrown your first home, have decided to put it on the market and sell it. Your Selling Agent presents you with an offer way above your expectations, you’re ecstatic, and you happily accept and begin the paperwork. The Buyer agrees to the terms of the deal, including your desired deposit, to be delivered within the next 24 hours.
But 24 hours pass and their deposit never comes through? Even though there was a contract? The deal falls through completely and you’ll need to put your house back on the market to start the entire process over. Your Selling Agent tells you that “unfortunately, this can happen” - but it shouldn't.
There are a lot of factors that play into why this “frustrating for all” situation happens - but in today’s market, there are two main reasons that seem to be the root cause. The first thing you need to take into consideration is how offers and deposits work.
Offers & Deposits
Being in a Seller’s Market, every listing now has an ‘Offer Date’. This is the date that Buyers are allowed to submit their offer to the Seller for review. In a low inventory market this typically results in multiple offers. The Buyers submit their best offer on paper without knowing what the other offers are being sent in. The winning offer is required to submit a deposit to the Seller’s Agents brokerage to be held in trust until the closing date. On the closing date this deposit now becomes part of the Buyer’s down payment on the home.
So why are Buyers not delivering deposits? There are two main reasons.
Reason #1
Due to the market being a Seller’s Market, Buyers are putting in multiple offers on the same night. Each home has a specific date where the Seller will entertain offers. Chances are there will be more than one house you are interested in and sometimes it just so happens they will have the same offer date. Unfortunately when this happens, it forces you to make a tough decision - you either select which home you have a better chance on or the one you like the most. The key point I am trying to make is you select one. You do not submit offers on different properties at the same time. If both Sellers accept your offer now you're contractually obligated to close both. This is where the problem comes from - Buyers think they can just not deliver the deposit on one of them. What’s even worse, is that Buyer Agents are recommending this strategy to their Buyers, putting them in breach of contract.
Reason #2
There are usually two thoughts that run through a Buyer’s mind when they get that call saying, “Hey! Your offer has been accepted! Congratulations!” The first one being - OMG we bought a home, the search is over! YES!!! Pack your things we’re moving!!!!! OR - OMG we won over 34 other Buyers. How much did we overpay! I don't want this house anymore!
If it's that second one, a lot of Buyers think they simply don't need to deliver the deposit; they're relieved of any responsibility. As Seller what can you do to make sure this situation doesn't happen? When we look at Buyers' offers for a listing, great emphasis is placed on the deposit, how much, where it is coming from, and whether they have it in hand or presented with the offer. Unless you have the deposit in your hand when you accept the offer there is always a chance that deposit does not get delivered.
In my professional opinion, offering any kind of legal advice to a Buyer is simply unprofessional. Especially when you’re mis representing it and putting the Buyer in harm's way with a chance of being sued for damages. It is best practice to make sure your client fully understands how offers and deposits work - on both ends.
