Why Two Deposits May Be Better Than One

Why Two Deposits May Be Better Than One

You’ve finally found your dream home and you’re ready to make an offer. To prove that you’re serious about your offer, the seller will expect you to make a deposit. Although there’s no specific rule about the amount of deposits, a low deposit could set off red flags with the seller and make them think twice about accepting your offer.

If your offer is clean (free from conditions), it should be a done deal once the seller accepts. However, problems can arise when a conditional offer is made. The most common conditions included by buyers are home inspection and financing. In the unlikely event that your lender doesn’t approve your mortgage, the condition of financing should protect you from losing your deposit. It will be in the best interest of the sellers to return your deposit promptly, as they cannot re-list their home until your deposit is returned. If you want to back out of a deal due to concerns from a home inspection, that’s when you might have trouble.

What is a Deposit?

Your deposit, not to be confused with your down payment, is made at the time of offer. Once your offer is firm, your deposit is applied against your down payment made on closing. In pricey markets like Toronto, it’s not unheard of for buyers to make a five per cent deposit, which may be as much as their down payment.

RELATED: Deciding on a List Price

Protect Yourself with Two Deposits

In a recent article, real estate lawyer Mark Weisleder brought up an excellent point – two deposits may be better than one. You’ll be glad you made two deposits instead of one if you have a dispute with the seller. A common dispute with sellers is regarding the home inspection. For example, you may think you’ve found your dream home, but upon yourhome inspection you find out there is a crack in the foundation that will cost $60,000 to repair. You decide you’d rather walk away and ask for your deposit back. The sellers are caught between the proverbial rock and a hard place. You may mention your concerns to the sellers, but without a copy of the home inspection they may not take your word for it. If the sellers re-list their property and potential buyers get wind that a previous deal was nixed due to an unsatisfactory home inspection, the seller may have to reduce their asking price.

The best way for buyers to avoid this sticky situation is to make two deposits instead of one. Weisleder suggests that you make a smaller deposit along with your offer and a second larger deposit once the conditions have been satisfied. That way only a small amount of money will be tied up if the seller doesn’t want to return your deposit.

Although this strategy can help you, it has the potential to cost you your dream home; as mentioned, a seller who has two near-identical offers to choose from is more likely to take the offer with the highest deposit. If you’re in a multiple offer situation, keep in mind that you may have to make a higher offer price to offset a smaller deposit up front. At the end of the day, it’s up to you how you want to structure your deposit(s), but keep in mind that conditions can often make or break an offer.

via:http://www.housingblock.com/blog/two-deposits-may-better-one/?utm_source=rss&utm_medium=rss&utm_campaign=two-deposits-may-better-one