Three Ways to Submit a Deposit
An agreement of purchase and sale provides for a deposit to be submitted by the buyer. The agreement makes following three options available:
“Herewith” or at the time of presenting the offer;
“Upon acceptance”, defined as 24 hours from acceptance in the preprinted portion of the agreement, and
“As otherwise provided.” This allows the parties to agree to a longer period to deliver the deposit, and can be a better choice for out of town buyers.
It Should be an Amount the Buyer Doesn’t Want to Lose
Regardless of how it’s submitted, a deposit secures the agreement in a number of ways. The buyer has “skin in the game”, money he stands to lose if he doesn’t follow through with his promises under the contract. To that end the deposit should be meaningful. That is, it needs to be an amount that the buyer would not want to lose. It commits the buyer to act in good faith in striving to meet any conditions (such as obtaining mortgage financing, a home inspection for instance) and to complete the purchase.
What Happens When No Deposit is delivered?
The purchase agreement clearly states that “time is of the essence.” So meeting any obligation under the contract has to be adhered to within the time period stated, including delivery of the deposit. Otherwise the seller can take the view that the offer has been repudiated, hence the buyer is in breach of contract.
So What Can the Seller do?
The seller can choose from two courses of action:
Write a letter to the buyer stating that if the deposit is not received within say twenty-four hours from the date the letter was communicated, the seller will declare the contract terminated.
The seller can also pronounce the offer null and void immediately after the time for receiving the deposit expires.
When There’s More than one Buyer
The issue becomes even more important when other interested buyers are waiting in the wings. As an example, recently a second offer for more money was accepted by the seller as a back-up offer, conditional on the seller being released from the first offer. The first buyer not only failed to deliver their deposit within the twenty-four hours stated, the seller still had not received it by the end of the fourth day. On day five, and due to the breach, the seller declared the first offer null and void.
Releases Not Necessary But a Precaution
The seller’s lawyer agreed with the seller’s decision and felt any challenge by the rejected buyer would be an assured win for the seller. Yet to avoid such a possibility, the lawyer asked for signed releases if possible. The buyer signed releases without a problem and likely to his benefit as well. If he were to legally challenge the seller’s repudiation of the offer, the seller could still be awarded the deposit in spite of the fact that the seller did not receive it or lose any money.