My seller agreed to a deposit of $1,500 on a $120,000 purchase. His realtor cautioned that this was a small deposit, but it was a quick closing, and all looked good, so the seller didn't ask for a larger deposit. The deal went unconditional, and then the buyer lost his job. The bank wouldn't fund the mortgage, and the deal collapsed.

Back in the day, a standard deposit was 10% of the purchase price. It's not like that today; deposits are negotiable. How much should a deposit be?

If you are on for the buyer, as little as possible. If you are on for the seller as much as possible.

Since my client was the seller, let's discuss it from the seller's perspective. 

When a buyer fails to close, the seller's legal position is that he is owed damages from the buyer. Those damages are the difference between the original sale price of $120,000 and likely a lower sale price to another buyer, plus all expenses. The deposit is forfeited to the seller. 

While this is the seller's legal position, the seller has to sue the buyer to enforce his legal right. Sellers almost never want to sue, and I don't blame them. Lawsuits are expensive, stressful, time-consuming and never guaranteed.

So, practically speaking, since sellers rarely sue, they forfeit the buyer's deposit and move on. That brings us back to the question, how much should the deposit be?

As I said above, as much as possible. Another way to explain or discuss with your sellers is to have a conversation about what happens if the deal collapses? Ask your seller what deposit amount they could live with should the buyer fail to close? Then try to get that amount of deposit. 

As you have this conversation, don't forget your listing contract. Typically you and the seller split any deposit up to the point where you would be paid your full commission. Always consider and explain how you, as a realtor, would handle the deposit split between you and the seller.

And, if your seller insists on what you think is too small a deposit, make sure you tell them! Send them a confirming email.

Protect yourself.

Cheers,

Barry

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