Deposit of 10 % before exchange?

osaddict

Hello Everyone,

I'm just running through the contracts for a house purchase and it seems that part of this is paying a deposit of 10% (which amounts to 35k in this case) before exchange.

This was news to me. I fully intend and want to purchase the property, and my deposit was going to be higher than this anyway so it's not an issue.

Is this common practice? It seems my solicitor is saying if I were to pull out then the seller would pocket 35k, surely the same must apply to me? - If they didn't go through I'd get 35k from them?

This seems a bit odd since quite a few purchases fall through?

Am I missing something here?

Thanks!

Red-Squirrel_2

The deposit goes to the seller's solicitor on exchange, and they hold it until completion. If they didn't complete (although that's incredibly unlikely, as exchange is legally binding) then the money would be returned to you, and there would be legal avenues for you to pursue to either force completion or sue for damages. If you didn't complete, also unlikely I hope, they'd keep it, and also probably sue.

stator

It's not 'before' exchange, the money is transferred at exchange itself.
After exchange you are fully comitted to the purchase, so if you pulled out you would indeed lose the 10% plus unlimited extra money to cover the losses of the seller.
If the seller pulled you could sue to force completion and you could sue for your losses, again unlimited. But there is no 'reverse deposit' that the seller would automatically lose.

Speak to your solicitor for clarification if you like but it's important to understand how binding 'exchange of contracts' is.
It's possible to negotiate a lower than 10% deposit at exchange if this is a concern.

Hoploz

Completely normal, yes.

When you are selling at the same time you use your buyer's deposit to go up the chain as part payment of your purchase deposit, so you wouldn't need to find the whole amount.

osaddict

The exact wording in the contract I have is as follows:

When Contracts have been exchanged, you will be committed to buying the

Property and the Seller will be committed to selling it.

 You may be required to pay a deposit of 10% of the Purchase Price. In certain

instances it is possible to agree to pay a smaller deposit, even though the full

10% will remain due to the Seller if for any reason you default in completing the

Transaction.

 If you have a related Sale then it is usual practice to use the deposit received

on your Sale for your Purchase.

I asked for clarification, as I was confused (I am providing a 30% deposit on the property), I was told:

In order to exchange contracts we will need a deposit of 10 % of the purchase price which will either be sent to the solicitors to hold pending completion or we will hold to the solicitors order dependant on agreement on exchange. This information is detailed in our initial paperwork.

KRB2725

Perfectly normal.

The deposit amount is 10%. It doesn't apply in your case, but if you had agreed a 5% deposit and then failed to complete, you would still owe the remaining 5% to the vendor.

Even if you are putting down a larger deposit, only 10% of the purchase price is needed for exchange, the rest can be transferred just prior to completion.

Your solicitor needs to have the funds prior to exchange, in order to be able to exchange, but it will be held by the solicitor (not sure if it's held by yours or the sellers) until completion.

G_M

You need to understamd that there are two meanings of the word 'deposit'. They are entirely unrelated.

1) When applying for a mortgage you will ask for a % of the purchase price as a loan, and you will provide the remainder of the money needed yourself. This is commonly known as the deposit.

* Purchase price £100,000
* mortgage: £70,000
* 'deposit': £30,000

2) When drawing up the contract of sale, the buyer will agree to pay the seller a 'deposit', usually 10%, when the contracts are exchnagd, and pay the balance (90%), at Completion. This contractual deposit has no connection whatsoever with the 'deposit' in 1) above. It may be more; it may be less.

This seems a bit odd since quite a few purchases fall through?

In fact from the point that contracts are Exchanged very VERY few purchases fall through.

sebadee

I am getting little concerned after reading this.

We have our 10% deposit (the lender covers the other 90%) our stamp duty and legal fee's covered.

Do we need to have an additional 10% aside to the 10% above, or do we simply source the 10% we already have?

DaisyBrown

Sebadee - no you don't need another 10% - you use the 10% you already have and it is held after exchange, then on completion it is part of the money used to buy your new home.

sebadee

DaisyBrown wrote: »

Sebadee - no you don't need another 10% - you use the 10% you already have and it is held after exchange, then on completion it is part of the money used to buy your new home.

Thanks DaisyBrown, I got concerned for a minute then, phew!

osaddict

Ah that makes sense now then. Thanks for clarification, most helpful.