Nothing says ‘I’m serious about buying this house’ like a huge deposit
I had to laugh. A few months ago I bought a property in the country. Knowing the Toronto market like I do, I was prepared to shell out $50,000 as a deposit with my offer. Before I wrote the cheque I thought I would just ask the listing agent what an appropriate deposit would be. His response…$5K should do it! The experience highlighted the differences between our two markets. One, a fast paced, come hell or high water environment where a big deposit means business, and the other, gentle simplicity where trust is the underlying currency.
The reason I bring this up is that many years ago, at the start of my real estate career, deposits were never really that high. It was always impressed upon me, when I was starting out, that the deposit should at least cover the commission but that guideline was seldom adhered to. Today, the deposit amount plays an intricate role in the purchase of a house. A big deposit, in the form of a bank draft will beat out a small deposit written on an uncertified personal cheque every time. In fact, nothing says ‘I’m serious’ like a deposit of 10% of the property value when offering. With big money on the line, buyers need to know the implications….on the off chance that something goes wrong. Clearly its a lot of money to leave on the table.
What I am inferring here is that the buyer interview just got a whole lot more important. We are long past taking a buyer’s word that they are approved to buy a house. A responsible Realtor needs to do a deep dive during that initial buyer meeting and be prepared to ask some often difficult questions. Buyers have to know that their deposit might be at stake given the fact that there are so many places where things can go south. It’s not just buyer’s remorse anymore, we are seeing deals fall apart because banks are changing financing terms on the fly.
So what can you do to help Betty Buyer? Ask more questions and offer more advice. It’s no longer good enough to ask if she has talked to a bank. Get Betty to provide a letter of commitment from the bank OR get her to talk to YOUR guy. Talk to Betty about the perils of not closing. Explain what happens if the house doesn’t appraise out. Ask if there are sources for her to find more capital (like the bank of Mom and Dad). Talk about closing costs and various taxes she will need to pay. Its time to take the buyer interview to the extreme vetting stage! For some agents it will be a difficult conversation. For others it will be instinctive. But at the end of the day it is not just about all saving you grief and heartache when the deal goes south, its about going the extra mile for your buyer client. As the listing agent, there is extra onus on you to ensure that the buyer is QUALIFIED to buy the home. This means asking the buyer agent questions about their buyer; how long have they been associated? Have they done offers before? What steps did the buyer agent take to ensure the buyer has money to close? I am reminded of a deal I did many years ago that went sideways after an accepted offer. I asked the buyer agent what they new about their buyer and was shocked to hear that they met them at an open house, and didn’t have time to properly qualify them. Hey, not all deals will go according to plan but if you ask the right questions first you eliminate problems down the road.
Mark McLean is the Broker/Manager at the Bosley Real Estate Queen St W office, the Immediate Past President the Toronto Real Estate Board and a director at the Ontario Real estate Association. The opinions expressed here do not reflect the opinions of TREB, OREA or Bosley RE.