Hi,
In NSW is it common practise to leave or be asked to give a ‘good faith’ sum of money when making an offer?
I heard this somewhere recently for the first time – is this part of the deposit money then and how much is normal…if it is the done thing.
Peach
Agent often tell you that you have to deposit 10% of the contract sum. This is actually not true and I (and several other people I know including Steve McKnight) have a $1,000.00 policy.
I try to always attach a cheque of $1,000.00 to the contract. If they do not accept the offer you have lost nothing, but they may understand that you are serious.
The deposit does not help anybody. It just gets put into a trust account earning minimun interest. Only very inexperienced agents or one’s with a big ego will have a problem with it.
Small deposits help your cashflow (expecially if you are doing multiple deals) and save you interest (especially if you have long settlement periods).
Hope that helps
Good Luck
Hi Peachy,
As an ex estate agent I know from experience that some vendors get very nervous about accepting an offer with no money down. I am in Victoria and $500 was usually enough, however, the initial deposit has no advantage to the estate agent, so try and listen to what the agents advice may be as they will know what their client would prefer.
Originally posted by kpi:Hi Peachy,
As an ex estate agent I know from experience that some vendors get very nervous about accepting an offer with no money down. I am in Victoria and $500 was usually enough, however, the initial deposit has no advantage to the estate agent, so try and listen to what the agents advice may be as they will know what their client would prefer.
As I am an investor, and I buy because it suits me, I offer only the deposit that suits me ($1,000 usually).
I don’t care whether the deposit I offer suits or doesn’t suit the vendor. It’s my way or the highway. I’m not buying to do them a favour.
They want to sell the house, I want to buy it, but there are many others to buy.
They will get the rest of their money at settlement.
Fortunately, most vendors don’t have a problem with the $1k.
The ones that do lose a sale.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Don’t worry about what a real estate agent says.
Make the offer with a small deposit if you wish but I only provide a deposit once we have a preliminary deal.
Remember its not a sellers maket anymore, tell the agent to do his job.Kick butt and have fun!
[specool]Thanks everyone for the replies…your help is much appreciated.
I think I have confused myself more with this question than I intended!
I was under the impression that you make an offer – then when accepted and the contracts are formally exchanged the deposit is paid…be it $1000 or $50000.
I have been told at a recent course I did that (and the guy was refering to the Sydney area – specifically the Northern Beaches) that when the offer is made the agent may/will ask for a good faith payment of say a few hundred dollars to show that your offer is sincere – the deposit is still paid at the point of exchange (I am not sure that if you pay this good faith sum if it is deducted from the house price).
I have never heard of this before as I thought you just paid the deposit at the exchange stage…or do most people pay the deposit when they make the offer – and if so isn’t this tricky if the offer is declined??
Ah confused!!
[blink]Peach
I have not heard of this good faith payment before, but I am sure it forms part of your purchase price.
I normally staple a $1,000 cheque to my offer with a clause stating that banking of the cheque constitutes as acceptance of my offer. You should never lose your deposit if no contract gets signed.
Offering the cheque is used as a carrot to demonstrate to the vendor that you are serious.
Originally posted by kpi:Hi Peachy,
As an ex estate agent I know from experience that some vendors get very nervous about accepting an offer with no money down. I am in Victoria and $500 was usually enough, however, the initial deposit has no advantage to the estate agent, so try and listen to what the agents advice may be as they will know what their client would prefer.
I have found alot of agents like the deposit to be a minimum of what their commission is going to be – if the deal falls over after it has gone unconditional usually the agent is still entitled to be paid part or all of the commission. So often this is the motive behind an agent who wants a bigger deposit out of you.
Hi again,
Bridgebuff…if they don’t accept the offer how do you get your $1000 back. Do they usually just give it back to you or have you ever had to fight for it??
I only ask because it is not like the cheque is going to have the reason for changing hands on it. Oh and is it silly to give cash or a money order if you don’t have a chequing account?
Cheers
PI too have been asked for an initial deposit prior to exchange of contract (obviously taken off purchase price). The reason given was that it would secure the proerty during the time until exchange of contract ie keep it from being sold to anyone else. It was my first ever purchase and I paid it (only $1000). The reality is that until there is a legal exchange of contract anyone can purchase the property and the “good faith deposit” has no legal bearing. I think this is where some people consider themselves guzumpt. In the end I guess it comes down to the ethics of the REA ie selling after an agreement has been reached. I have never since paid such a deposit and the only deposit I pay is on exchange is is the minimum I can get agreement on (typically $1000). Unless you agree to an early release of the deposit to the vendor, the deposit cannot be touched so I dont see the need to offer a larger one if you can get away with it.
TI remember leaving a small deposit as a good faith type thing. Can’t remember, but it was supposed to show you were being serious. That was in 1988 on a house in Wodonga Vic, and also on a block of land in 1998 in Wagga. The house I went ahead with, but the block of land I didn’t, and was worried I may have lost my deposit, but they paid it back real quick as I had signed nothing. It was always part of the total price, not an extra.
In hindsight I must have had sucker on the forehead. It does mean nothing to the real estate agent, as they would sell their grandmother some of them! But on the side of the real estate, it had us worried that if we pulled out we would lose the money. It may be a little real estate agent trick to make you feel like you will have broken a promise, but in fact it has no legal standing at all.
I could be wrong, but if I was ever asked again, I would ask them to show me in writing the legislation that required this, and a guarantee that the good faith meant they would keep to the deal too. They would back peddle real fast I am guessing.
Good on you for asking this question I have learnt a lot fromt the other posts too.[lmao]
kjs
Hi Peachy,
Tammy (above) is correct in what she says. I am a real estate agent in Sydney. I never ask for a ‘good faith’ deposit as it is not legally binding in any way. The only way a property can be ‘taken off the market’ is when the purchasers are willing to exchange contracts with a .25% deposit and this will buy them the right to have the property off the market for 5 working days. (It will also go towards the purchase price if proceed.) At the end of this period, the purchasers must come up with the balance of the agreed deposit, typically 5% or 10% of the purchase price or rescind the contract, in which case they will lose their .25%. (This money goes to the vendor as compensation for the property being off the market, not the agent.)It is very rare in Sydney for a solicitor or vendor to agree to accept less than 5% deposit because if the purchaser pulls out after the contract goes unconditional (ie after the 5 day cooling off is over), then the chances of getting the balance of 10% out of them is not good. (This is what they would have to forfeit if they changed their minds after the contract was unconditional regardless of the deposit put down).
Regards Tammy’s comment of being gazumped, it is not the agent that does the gazumping, but the vendor. We, as agents (at least in NSW) are legally bound to submit all offers to a vendor or we can be sued. If prior to exchange of contracts (either with or without a cooling off), the vendor chooses to accept the higher offer (or indeed, a similar or lower offer ) from someone else and instructs us to do so, then by law, that is what we have to do.
In 6 years as an agent and 100’s of sales under my belt, I have only ever had 3 vendors honour their agreed offer rather than accept a higher offer or one with more favourable conditions. Generally, they will instruct us to give the 1st buyer an option to match the higher offer, but will go ahead with the better offer if the 1st buyer can’t/won’t match it.
My suggestion to purchasers to avoid being put into this situation is to exchange as soon as practicable with a .25% deposit and insist that the agent take the property off the market. If the agent is still insisting on a good faith deposit, but won’t let you exchange, I would be very wary, although you have every right to have it refunded in full if the offer is not accepted or have it used towards the purchase price if it is.
Hope that clarifies somewhat!
Linda [exhappy]Linda,
I appologise if you in any way were offended by the REA ethics comment. It was not intended to do so. Thank you for your info on the 0.25% to secure, that was something I had not heard of before.
Tammyand you should be given a receipt from the agent for any deposit that is paid over – provides a good paper trail.
Im in this very position right now.
We have made an offer on an apartment. The agent insisted on a 5% deposit – almost $20000. Our mistake was to accept this. [withstupid]
Since then we have realised that it impacts on our available cash flow for other things such as fees etc. Almost immediately after signing the offer, we realised and tried to change it. Too late, all changes now have to go through a solicitor. My solicitor assures me that it can be renegotiated through the vendors solicitors, but its a bunch of hassle and delays that could have been avoided by insisting on $1000 deposit. [weird]
Hi Tammy,
It’s OK, no offence was taken. I know us agents don’t have a brilliant reputation (in a lot of cases with good reason). I wanted to explain as a lot of people just assume it’s the agent, when it actual fact, it’s the vendor.It puts us in a horrible position and I hate it when it happens, but ultimately, we work for the vendor and have to follow their instructions whether we agree with their decision or not.
I also own 5 investment properties (in Sydney), so I have been on the buying side of things a number of times and haven’t always had the best experiences myself. If I can try and educate other members on this forum on how. what and why an agent is thinking, then it can only benefit all of you when you go to do your next deal. I’ve got nothing to hide and will help when I can!!! [exhappy]
Linda
Hi Linda, thanks for clarifying that issue for us. I have never heard about the .25% thing. It is very hard to ask the REA the right questions when you don’t know what to ask. Many would not bring this clause to light in the hope that a better offer comes past, and it must always be remembered that the agent works for the seller. You will be a stayer in the industry by the sound of it, good luck in selling many more properties.[biggrin]
kjs
Linda is spot on about the 0.25% due on exchange with the remainder of the deposit (5 or 10% is most common though some vendors will accept less upon request or depending on individual circumstances) then due when the contract goes unconditional, which usually occurs after expiration of the five day cooling off period in NSW.
To make an offer possibly more attractive to the vendor, however, some buyers will opt to waive this cooling off period (using a form called a s66w form) and exchange, with the entire deposit then due as part of the deal. Once a contract is unconditional, and the purchaser then pulls out of the deal (rare but it does happen!), the vendor is able to legally retain 10% deposit. This is often the reason why vendors (and their legal representation) will insist upon 10% deposit.For a really simple and easy to follow guide to buying property in NSW check out the Fair Trading link here:
http://www.fairtrading.nsw.gov.au/realestaterenting/buyingselling/buyingprocess.html
As for expressions of interest or good faith payments, they mean nothing legally and, as such, shouldn’t be relied upon as “holding” the property in any way, shape or form. As Linda has rightfully pointed out, until contracts are formally exchanged in NSW, the property remains on the market to any potential purchaser.
How’s the Hornsby market going, Linda? Would be interested to hear your opinion on where you believe that section of Sydney is at in this sector of the cycle.
Cheers,
Jacque
http://www.housesearchaustralia.com.au
Totally Independent Buyers Agents- Sydneyhttp://www.invested.com.au Australia’s premier Investor Education site
Hi Jacque,
The market is great in Hornsby with the exception of high rise units. Most properties, if priced right (and are not the dogs!) are selling easily within 6 weeks, often much sooner. We flattened out about Aug 05 and have been pretty steady since then. Even the interest rates have affected us much. I sold 9 in Nov, 5 in Dec and so far 6 in Jan with another one to go today. The market’s great!
LindaI am a conveyancer on the north shore and I find that there are some agents around that are asking for purchasers to leave a holding deposit. Under a contract for sale in NSW a holding deposit is usually only left if you are signing a contract with a cooling off period. This means that you sign a contract with the agent and then have 5 days to get your reports and see your conveyancer about the contract. This deposit under the contract is usually 0.25% of the purchase price. However this deposit is only paid on signing the contract and after an offer has been accepted. And yes it forms part of your formal deposit which will be paid following the expiration of the 5 days cooling off period.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
