Deposit vs. Downpayment

On the heels of the delightful NYTimes article on buying in this market, a dear friend is in a bit of a panic. She will have a significant downpayment to bring to closing once she sells her current place (like 50%) but she can’t come up with more than 5% to put down as a deposit if/when she goes into contract on a new place.  Her realtor told her she can’t go into contract without putting down a deposit of at least 10%. I can’t believe this is true. We bought our current place last year and only put down about 2% of the purchase price as a deposit. I realize our particular deal was pretty much sealed on a handshake but is a large deposit at contract signing the new norm in Brooklyn?

snarkolepctic

in Real Estate - General 10 years and 11 months ago

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howardfromfillmore | 10 years and 4 months ago

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Deposit can be whatever $ amount that is ACCEPTED by the seller/sellers lawyer as a satisfactory demonstration of their seriousness to conclude the sale. Make sure the SELLER knows how much she really wants the property, and maybe they will agree to give her 60-90 days to get into contract and close. ANYTHING can be negotiated if both parties are willing to listen. Perhaps the price offered is higher than the non-contingent offers. Maybe the seller will simply have a HEART and let her buy on those terms. Maybe i’m a crazy optimist but in my 27 years of selling homes in Brooklyn, I have seen many sellers give someone a break, and not simply sell to the deepest pocket. Maybe,

brokelin | 10 years and 11 months ago

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I agree – the need to make the contract contingent on sale of her current place (which need sounds likely, though not necessarily, given the scenario you describe) will likely pose even more of a problem than a 5% downpayment.  She will probably be better off selling her current place first, and then purchase another, even if that means having to move twice and rent someplace temporarily.  She could also sell her place and arrange to rent it back from the purchasers for some months to give her time to close on the next place so as to only have to move once – she’ll have all her equity available to her for her next purchase if she does that.

curiositykilledthecat | 10 years and 11 months ago

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We just bought a place upstate, which has a much softer market, and we put 10% as a deposit and another 10% at close.  Pretty standard. If your friend intends to make the sale of her place a contingency in the purchase contract, that will definitely make her offer less appealing, btw. Good luck.

hdlbklyn | 10 years and 11 months ago

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If she hasn’t already put her current home on the market she can take out a home equity line, draw on it for the deposit and pay it off at closing. Get one with no payoff penalty. If she already has her place on the market, too late.

rcltrh | 10 years and 11 months ago

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In real estate contracts, pretty much anything goes if you can get someone to actually accept your offer.  10% is typically standard in Brooklyn/NYC,  however one could theoretically put down anything from 0 to 100%.  The problem is getting someone to take you seriously in this sellers market.  Whatever amount you put forth becomes liquidated damages if you don’t follow through.  In this market you would be hard to find a seller willing to essentially take their house off the market (“an offer has been accepted” means some other potential buyers would pass you by) while they wait to see if your inspection goes ok, appraisal, financing, etc.  only to find out 3 months down the road something has come up for the buyer to walk and leave the seller with only whatever amount was put forth.  They then have to start marketing, showing, basically the whole thing over again with prospective new buyers – let alone if they have already made an offer and put a down payment they risk losing on something else themselves.  In this competitive market 10% is probably the least amount you would want to put down to make someone take you seriously.

dylan621 | 10 years and 11 months ago

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10% is standard b/c that amount becomes liquidated damages if the buyer walks away from the deal. 2% wouldn’t be enough of an incentive to insure that the buyer comes to the closing table.

backeast | 10 years and 11 months ago

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FWIW, I think a 10% deposit on contract signing is standard in Brooklyn – it’s what I put down on a co-op 10 years ago and what I put down for a house 1 year ago.