Offer to purchase: consider your deposit
Just like many of the fillable fields on a Pennsylavania Agreement of Sale, the amount and deadline for the buyer’s deposit should be considered carefully. Why? Because it can be used as part of your strategy as far as appealing to the seller. In order to make the best decisions about the deposit, you need to understand how it works and the rules governing whether it can be returned or forfeited. In this post, I am focusing more on contracts which do not have contingencies allowing for the return of the deposit.
Deposit: is it refundable?
I’ve had clients ask why the deposit matters so much when writing an offer for a house “since it’s all going toward the amount that is due at settlement and the seller is not the one who holds it”. It matters because (in PA) the buyer will forfeit that deposit in the event of default. While there are scenarios in which a home purchase falls through and the deposit is returned to the buyer, those situations are specifically outlined in the contract. For example, if there is an inspection contingency and the buyer terminates due to inspection issues within the predicated time period, the deposit is returned. However, if a buyer decides, a couple of weeks before settlement, that she found a house she would prefer to buy, she is not entitled to the return of her deposit on the orginal property.
Why a larger amount makes a difference
A seller is always looking for the offer that not only offers the highest net proceeds and best terms and conditions. One of those terms is that, in the unlikely event that the buyer defaults (does not come to settlement to complete the transaction), there is as much money on deposit as possible. Why? Because, in the event of default, the seller can keep the buyer’ deposit. Also, recognize that, from the buyer’s perspective, a larger deposit reduces the likelihood of default expressly because so much money is on the line. Consider an offer with a $10,000 deposit vs. one with a $50,000 deposit. A buyer who found a house she liked better once she was already under contract on a property would be much less likely to walk away from $50,000 than from $10,000. So, not only does a larger deposit mean more financial security for a seller if the transaction falls through, but it also reduces the probability of that fall through.
Why a quick delivery matters
The way a Pennsylvania Agreement of Sale reads, until the buyer’s deposit has been received, if the buyer of an executed contract backs out of the deal, the seller has no leverage–if the buyer just chooses not to honor the contract, there’s not much the seller can do. Therefore, the sooner the deposit is due and delivered, the sooner the seller breathes a sigh of relief, knowing that, at that point, the buyer risks a financial loss if she doesn’t complete the transaction.
If you are relocating to the Philadelphia/Main Line area, please go to my blog page and search for posts using the relocation tag. Contact me to discuss your Philadelphia area relocation! jen@jenniferlebow.com/610 308-5973
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