Wednesday, July 6, 2011

Holding Deposit? No Such Thing!

When a purchaser wants to submit an offer on a property the estate agent will often request what is termed a "holding deposit". It is important that consumers understand that there is no such thing as a "holding deposit" in real estate.

The term "holding deposit" implies that once the requested amount (usually $500 or $1,000) is paid the vendor cannot sell the property to anyone else. Of course, the purchasers believe that they cannot purchase another property without losing the "holding deposit".

In fact, neither the vendor nor the purchaser is bound by the payment of a "holding deposit".  The contract determines how much deposit is to be paid, and the date by which it is to be paid. The agent has no say in the matter at all. An agent who refuses to submit an offer to the vendor is not acting in the vendor’s best interests, and breaks the law by failing to communicate the offer to the vendor as soon as possible. This means that if a better offer is submitted to the estate agent, the estate agent must ignore the "holding deposit" and submit the better offer to the vendor, and vendor is free to accept the better offer.

Why does the estate agent demand a “holding deposit” from the purchaser if the agent knows that it cannot bind either party? The sole purpose is to control the purchaser. By taking hundreds of dollars from the purchaser, the estate agent creates something of a psychological hold over the purchaser, so that the purchaser is less likely to change their mind. Add to this is the knowledge that "cooling off" involves a loss of money, and the control becomes even stronger.

Estate agents who demand a "holding deposit" should be asked whether the vendor has confirmed to the estate agent that no further offers will be entertained after the payment has been made. Only if an acceptable response is received should the payment of a "holding deposit" be considered.

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