offer deposit - how much should it be?

camarion

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#1
I am a relatively new investor, here in the seller`s market of Vancouver. I recently wrote an offer to purchase on a house that was listed on the mls. I wanted to give a deposit cheque for 1% of the $500,000 purchase price. My realtor told me that no offer with less than a 5% deposit would even be considered. She even went so far as to say that she would tell any seller that she represented to not accept any offer that came with a deposit cheque of less than 5%. She is adamant about the 5%. I`m thinking I either need a new realtor or that I do not appreciate the competetiveness of the market. Does anyone have any thoughts or experience on this matter that they can share with me?
 
L

lanedry77

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#2
QUOTE (camarion @ Nov 5 2007, 08:07 PM) I`m thinking I either need a new realtor or ....
Bingo!

I can`t speak for Vancouver, but you sure don`t *need* to attach a $25,000 cheque to an offer here. The last offer I made (granted, it hasn`t been accepted yet) had a deposit of roughly 1.5% of the offer value that was due within 24 hours of acceptance, plus another 3% due upon removal of conditions.

Now, I`m sure that if a 5% cheque was attached to the offer, it would have gotten much more attention. but why tie up that cash?

That`s just my two cents. I look forward to hearing what everyone else is doing!


David.
 

Lucas

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#3
As a Realtor I advise my clients to do what they feel comfortable with...whether its 1% or 0.000001%, its all dependent on thier present financial circumstance and their motivation to purchase the subject property. In this market I advise not to exceed 10% (at the very most), simply because if an exit is necessary after condition removal, the loss is manageable.

I think your Realtor may be trying to strengthen the offer for some alterior reasons. Obviously she wants to present the strongest offer possible in order to have it accepted but she probably also wants "her" offer to look better professionally. Keep in mind, this is all conjecture and is stuff that I have run into within the industry.

As far as an `industry standard`...if there is one...ignore it!!! Just do what`s sensible to you and your circumstance...nevermind your Realtor.

Good luck with your offer!!!

Lucas
 

BMironov

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#4
QUOTE (camarion @ Nov 5 2007, 10:07 PM) Does anyone have any thoughts or experience on this matter that they can share with me?

Hi Camarion,

In my experience there are few facts to consider:
1) some sellers put "min deposit" on MLS and your agent has access to that information (Let`s say they want $10,000)
2) you write an offer and there is a place where you put amount of deposit that you willing to put (Let`s say $2,000)

If the your offer has a good combination of purchase price and conditions then amount of deposit becomes secondary for seller. Combine this with "step-up" deposit technique from previous post and you should be fine. The reason for me to say that is because seller should give you counter-offer and they are free to do change anything in your offer. If they will not change your deposit amount it means that it is OK.

As many people say: "In real estate everything is negotiable". Therefore there is no such rule as "min 5% deposit".

And if you are going to be in this game for long time "it is not the last one, there is always another house coming to the market"

Cheers,
Boris
 

NickStewart

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#5
And don`t forget your offer cover letter, which will probably have more impact on your offer being accepted than a larger down payment anyway!
 

DonCampbell

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#6
Hi,

Because many of us have a number of offers out at once, we have found that the best for us (and very well accepted by vendors) is to break the deposit into two pieces:

1. Deposit of $x,xxx upon acceptance of offer
2. Remaining deposit upon removal of conditions.

There is no set rule for the amount of deposit and it really doesn`t matter until the conditions are removed anyway. So the first piece can be $1,000 and the 2nd piece more substantial (i.e $10,000) because you are now committed to buying if you have removed your conditions so you have to come up with the money anyway. In fact, the latest official `Purchase and Sale Agreement" (offer) in Alberta actually provides and area for the two piece deposit.

And most important, the key to getting the offer accepted at ANY level of deposit is the cover letter attached to the offer.
 

Kelly

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#7
If the vendor is motivated I would think they would be happy with any deposit. How many other offers are they getting anyway?
 

LZARIF

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#9
Hi

I purchased a house in Vancouver and I know that is quite different from Alberta.Normally in Vancouver,buyers pay the deposite once and after the removal of conditions and is about 5% of the value
.But in Alberta as Don said,buyers pay 2 deposit and vendors are more felexible.

Good Luck With your Offer!


Leila
 

RedlineBrett

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Oct 24, 2007
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#10
Your agent is pushing for the bigger deposit for two reasons:

1. It makes it that much more likely that you will find a way to close because you have more at risk. When you close they get their full comission.

2. If you can`t close for whatever reason (some agents are nervous with new investors) then the deposit you`ve left gets partially distributed to the agents that did the deal - the lesser of 50% of the deposit or their full commission (in Alberta).

When we make offers we do the `staged` method that others here are advocating - a small initial deposit and a bigger additional deposit once conditions are removed.
 

Bill

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#11
QUOTE (LZARIF @ Nov 6 2007, 02:20 PM) Hi

I purchased a house in Vancouver and I know that is quite different from Alberta.Normally in Vancouver,buyers pay the deposite once and after the removal of conditions and is about 5% of the value
.But in Alberta as Don said,buyers pay 2 deposit and vendors are more felexible.

Good Luck With your Offer!


Leila
Hi Leila,

As long as there is some type of deposit it counts as a valid offer, it is entirely up to the seller as to whether he deems a $1 deposit satisfactory, or if he insists on $100,000. Very few sellers take a $1 deposit very seriously (I have done one deal for a $1 down and several for $100 before the "boom"), it depends on the rest of the offer.
If the proper cover page is attached explaining your offer and what it brings to the table this may be enough to close the deal. This is where finding out what the seller is actually looking for can be helpful, although that can be a harder process if it is via Realtors. If they are moving to a home being built for them and they are afriad it won`t be completed on schedule, a flexible closing date may be far more important than the end dollar or initial dollar.
If you have several offers out on the table you don`t want to put $50,000 down on each offer, especially if you have a long condition date, this is where Don`s comment about putting a smaller initial deposit down comes into play. With three offers out, you could be out of $150,000 for a few weeks, preventing you from buying anything else. The second deposit at condition removal just helps to put the seller at ease.

Hope I didn`t ramble to much,
 

LZARIF

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#12
Thanks Bill;
It was really helpful!


Leila

QUOTE (Bill @ Nov 6 2007, 05:32 PM) Hi Leila,

As long as there is some type of deposit it counts as a valid offer, it is entirely up to the seller as to whether he deems a $1 deposit satisfactory, or if he insists on $100,000. Very few sellers take a $1 deposit very seriously (I have done one deal for a $1 down and several for $100 before the "boom"), it depends on the rest of the offer.
If the proper cover page is attached explaining your offer and what it brings to the table this may be enough to close the deal. This is where finding out what the seller is actually looking for can be helpful, although that can be a harder process if it is via Realtors. If they are moving to a home being built for them and they are afriad it won`t be completed on schedule, a flexible closing date may be far more important than the end dollar or initial dollar.
If you have several offers out on the table you don`t want to put $50,000 down on each offer, especially if you have a long condition date, this is where Don`s comment about putting a smaller initial deposit down comes into play. With three offers out, you could be out of $150,000 for a few weeks, preventing you from buying anything else. The second deposit at condition removal just helps to put the seller at ease.

Hope I didn`t ramble to much,
 

LongWayFromHome

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#13
Clearly this realtor is focused on protecting her commission. There are other things she could focus on - helping you, understanding what outcomes you are trying to achieve, building a long-term win:win business relationship with you etc.
For me, Real Estate is fun and easy when I work with a realtor who genuinely wants to help me achieve my goals (and this doesn`t necessarily mean they are not looking after Sellers).
And yes I have paid $500 and $1000 deposits in Canada.
I walk away from any Realtors I don`t feel right about - even if they have a property listing I really want. There are thousands of realtors. We can be fussy about which realtors we choose to deal with. Walk away from anyone who seems mean-spirited, short-term, not genuine etc.
 

mcgregok

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#14
If the Realtor does not want to present your offer get someone who really wants your business. Its your offer not the Realtors. A Realtors advise is always welcome but it is only advise.
I was a broker in Calgary for 15 years. If I had a Realtor that put the buyers offer in jepordy by not presenting it just because they did`nt like it, I would fire them.
 

chrismccallum

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#16
Hi!

I like Don`s advice, among others. I just bought my first place in Fort Saskatchewan, and did the 2 stage deposit, coupled with a hand-written cover letter. $1000 initially, and 10K when the conditions were met. I am not sure how it was portrayed on their end, but they must have liked it, as it was accepted.
 

samwei

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#17
Hi..

For the initial deposit, in Alberta, you can also choose not to give the initial deposit cheque with the offer, and give the cheque only after the offer has been accepted by the seller.

All you have to do is cross off the clause in term 3.1 which reads "Unless otherwise agreed in writing, the Initial Deposit shall accompany the offer".

Thus, when you`re making several offers at the same time, you don`t have any money tied up at all until a seller accepts an offer.