About to sell your home? Accepting a low deposit may be risky

Has a Purchaser offered to pay a deposit of less than 10%? Before you agree, you should understand the risks involved if the purchaser can’t complete.

The standard home sale contract deposit is 10%, but purchasers cannot always afford this. If they offer a lower deposit, what do you do?

The importance of a deposit is that, for as long as it doesn’t exceed 10%, the seller is entitled to take and keep it if a sale contract is not completed due to purchaser default even where the seller has no proof of how much money he/she actually loses because of that default. However, if you accept a small deposit and your actual losses from the purchaser default are more than the deposit amount, you can only recover the difference by proving the amount of your loss in court.

In the past, some people tried to get around this problem by including a provision in their contracts that the deposit is 10%, with a smaller amount payable upfront and the balance payable on completion or purchaser default. This doesn’t work. Courts have held that, in these cases, only the “first instalment” represents the deposit.

So what does this meant to you?

If the Purchaser is unable to complete, you will almost certainly never recover more than the deposit to cover your losses. So if the purchaser asks you to accept a deposit of less than 10% on exchange of contracts, be satisfied that the deposit amount offered is at least enough to cover your loss if the purchaser defaults.

What else can you do instead of accepting a cash deposit?

If purchasers do not have the funds to pay an acceptable cash deposit, you can request that they provide a deposit bond or bank guarantee for an acceptable deposit amount instead. Just be sure that, if the bond or guarantee is provided, your lawyer or conveyancer has reviewed and approved it before exchange takes place.