Deposit! - How much should I offer to pay
This is a very common question we as lawyers are asked by clients on the rare occasion we are consulted prior to entering into a sale agreement.
Most people deal with the real estate agent and contact their lawyer once they have got a contract.
You will often receive contrasting advice from an agent compared to that of a lawyer when it comes to the topic of deposits.
The simple answer to the question – how much a person should pay for a deposit is that it is not a legal question.
There is no law on it, however, it often depends on the type of sale process that is being used.
For example, if you go to an auction, they will have presented you with auction terms that specify if you are the successful bidder the contract is unconditional and you must pay the deposit on the fall of the hammer as specified in the auction terms. It is most commonly 10%.
However, as property prices have risen significantly, that 10% has caused deposits to climb equally significantly.
If you are buying a house worth $1.2 million dollars, then you have to come up with a $120,000 deposit if it is 10%.
However, if you are simply submitting a tender or negotiating with the Vendor, you can put down whatever you like in your offer. Because it is your offer.
Sometimes you will find tender conditions that specify it must be 10%.
There is nothing wrong with crossing that out, putting your own figure in and signing the offer and submitting it as your tender.
I favour paying as little as possible for a deposit and do not think I have ever had to pay more than $15,000.
A deposit is simply a sign of good faith.
A real estate agent will most commonly recommend 10%.
Real estate companies are most commonly paid out of the deposit once the contract is unconditional and the statutory minimum period has elapsed enabling them to deduct their fees and pay the balance to the Vendor’s solicitor.
If you only offer $15,000 it is unlikely to be sufficient to cover their commission.
The agency will therefore have to wait until settlement day to get paid. Not surprisingly real estate agents would like to be paid as soon as possible once they have secured an unconditional contract.
But none of that should be of any concern to a Purchaser. The payment of the Vendor’s agent is the business of the Vendor and not the Purchaser.
If you are using KiwiSaver and wish to use your KiwiSaver for the payment of the deposit, there are a few hurdles that you need to jump over in order to secure KiwiSaver for your deposit.
Instead of doing that, if you have a lesser amount, simply offer that as your deposit.
If it is $15,000, then simply offer $15,000.
If your overall offer (i.e. the purchase price) is attractive to the Vendor, they are unlikely to be concerned about the size of the deposit as long as there is a deposit.
Do not be pressured into paying a very large sum of money that will sit in a holding account for weeks and sometimes months, depending on the terms of the contract.
Only offer what you can afford or what you have readily available. There is no legal requirement to pay 10%.
