Lower Property Deposits Carry Risks for Vendors

7th December 2023
Category Real Estate

The trend towards vendors accepting lower deposits for property purchases contains some risks for the vendor. The RMB Conveyancing Division explains:

With property prices on the rise again and the cost of living increasing, there is a growing trend towards paying a five percent deposit rather than the customary 10 percent.

Typically, when a purchaser offers to buy property from a vendor, the purchaser pays the vendor’s real estate agent or solicitor a 10 percent deposit to hold on to the property until the sale is complete.

However, in today’s economic climate, a lesser deposit such as five percent is becoming increasingly common.

Accepting a lesser deposit carries both benefits and risks for the vendor.

One of the most obvious benefits for the vendor is that it opens up their sale to more potential purchasers, who may not have enough upfront cash to pay a full 10 percent deposit, but who may nevertheless have secured finance to pay the full purchase price on completion of the sale.

Vendors eager for a quick sale may be tempted to go down this path, in the hope of widening the field of potential purchasers.

However, if the contract is terminated due to the purchaser breaching the contract, the vendor is entitled to keep the deposit which is forfeited by the purchaser.

In such cases, it is most likely that the vendor would only be receive the lesser deposit that was paid (rather than 10 percent) - even if the contract for sale has a special clause in it that states the vendor is still entitled to the full 10 percent in the event the contract is terminated due to the purchaser’s breach.

Therefore, when acting for a vendor who is considering accepting a deposit less than the usual 10 percent, it is important to advise them of the above risk in order to ensure that the lesser deposit amount is going to cover any losses that they may incur as a result of the purchaser’s breach.

These losses a vendor may incur include still having to pay a real estate agent’s commission, and also their legal fees for selling the property.

Fortunately, such breaches and terminations of contracts are rare because purchasers have the opportunity to make all their enquiries about a property so that they can ensure they want to proceed with the purchase before they enter into any contract.

If you have any questions or are concerned about your situation, your first step should be to contact our office to arrange a free consultation. You can contact us by by phone or our 'Ask a Question' tool on our website.