Deposit on Property

It means you don’t need a great wad of free cash sitting doing nothing for the 2-3 months until settlement. It also gives you those extra months to save more money for deposit or reno.

The initial deposit on exchanging contracts is just there to commit you to the deal. The LVR is worked on settlement value. That is if the bank will lend 95% = $106,875 you just have to bring the 5% to the party. That 5% can be made up of initial deposit + cash or all initial deposit or deposit + other debt (like draw down on existing equity). The bank just wants to make sure they are only lending against 95% of the security value and the vendor only cares that they get the money agreed on.

If your all cashed up at the Bank and ready to put in an Offer there should be no need for any Deposit.
Jenny and I never offer to give a Deposit.
Nor do we ask for a Deposit when selling.
Load of rubbish [rolleyesanim]

Interest costs won’t apply until Settlement occurs. You may be able to use a deposit bond instead of cash and invest the 5000 in a bank account with the bank earning interest as collateral for the deposit bond. The bond would cost you to use it but it means you do not tie up your money / or you may have equity in another property you could use as collateral for the bond. I haven’t tried this myself but know the theory of this type of financial instrument. might be Worth asking about at the bank.

That is the biggest load of RUBBISH I have heard.

Please tell me how your simple idea of no deposits helps you when the buyer pulls out at the last minute due to a property price slump and you have lost three or four other willing buyers who are now no longer willing. How are you going to recover the deposit which YOU WOULD BE ENTITLED TO KEEP???

I can assure you that you would never succeed in buying a property from anyone I know as they all require a deposit to take their property off the market and protect themselves against any potential losses.

The Mortgage Adviser

So Terry, having said that, which is what I expected westinvest would say in response to my question, you agree that it would be far cheaper and more secure to take a deposit right?

It seems westinvest is under the impression the deposit cannot be kept if the deal falls over.

As for not paying a deposit, as a vendor, if I did not receive a deposit, I would not consider it a valid contract as no ‘consideration’ has been provided by the buyer and I would sell to anyone else who offered me more and paid a deposit. I don’t think I would lose in any court on the grounds of ‘no consideration’ by the initial ‘buyer’.

The Mortgage Adviser

Apostle, I agree. But you are referring to some amount being paid even though nominal. It is a lot different to no deposit at all.

As for WA, I am familiar with purchasing there. I have a place in Queens Park WA and one in Geraldton. Both of these had no ‘subject to clauses’ as I offered to remove them as a negotiating point. Also, the deposit on one place was $1,000 ($239,000 purchase), and the other was $2,000 ($60,000 purchase for two properties).

In both situations, if I pulled out, they would have to take me to Court. Even if the clauses were left in but I pulled out for another reason, they would still have to take me to Court. They were both long settlements.

Deposit Bonds are a good option for not wanting to tie up dollars but they are still a ‘deposit’.

The Mortgage Adviser

I can see exactly how to buy and sell without deposit. I just think it is a ridiculous idea. You suggest I have a lot to learn, but I think it is you who needs an education regarding basic contract law and the cost of litigation should things fall over.

You ignored a scenario I put to you. I will offer another…

Say someone offered to buy your property for $200,000 with no deposit and a 6 month settlement period. You chose this person over 3 others offering the same.

Disregarding the subject-to-finance clause, during that time, they lose their job and want out. Also, the RBA increased the cash-rate three times and a plane hit centrepoint tower and took out the financial sectors communications for 2 weeks.

Your property drops in value to $180,000 as people are trying to sell at any price and you need to sell. The best offer you can now get is $175,000 with another 6 months settlement.

Another plane takes out your local shopping centre and the RBA increases rates by another 3%. Your property value comes down to $150,000 and the new buyer has gone bankrupt. What would you do????

Would you be telling me I have a lot to learn?

What would I do?

Would I be laughing at you for not getting a 10% deposit?

Regarding me finding better people to buy off, I have never asked for no deposit. I always offer $1,000 per property or nothing with long settlements. I always get it or I don’t buy that particular property. It is called ‘consideration’ to ensure the contract is enforceable from my end if the vendor tries to ‘gazump’ me. Do you know about ‘gazumping’???

Regarding deposits, of course I would never give them back if someone pulled out of a deal for no good reason. I have never encountered this so it is not an issue. I can assure you that they would need a damn good reason for wanting it back if they didn’t have an out in the contract because it would have cost me money. Selling property is not a charitable business! I am starting to wonder who has a lot to learn????

With regards to your $100,000 this fin year from 2 sales, I made more than that with none. Who cares????? I prefer custom mades though (no pipes)!!!

I suppose you also sell a car without a deposit as well? Do you let the buyer test drive it without providing you with their ID or license?

The Mortgage Adviser

Thank you westinvest. I agree that WA is certainly the gentleman’s (gentleperson’s) State when it comes to property investing but in Sydney, I believe it is essential to protect yourself when it comes to property dealings. The best way to do this as a vendor is by holding a decent deposit.

Anyway, congratulations on your successes to date.

The Mortgage Adviser

Rob, I think you will find that consideration does not have to be in the form of a deposit. If someone has signed a valid contract, then the consideration is the promise of payment. So a deposit would not really be necessary.

But I am no lawyer.

Terryw
Discover Home Loans
North Sydney
[email protected]