"Expression of interest" deposit

Recently having had a discussion with a potential client about this type of "deposit" sometimes requested from REA's, I thought I would clarify for those of you who are unsure about exactly what this payment means in legal terms.
When submitting an offer on a property some agents will ask for what is referred to as a "holding" or "expression of interest" deposit. This doesn't mean that the property is yours or that it gets taken off the market (which happens upon exchange of contracts) The seller or agent can take as many "preliminary" deposits as they like, however, if you hand over a cash amount for such a purpose (often to convey your seriousness to the vendor) the agent is then legally obliged to provide you with a receipt and inform you in writing that:

They have no obligation to sell the property to you
You have no obligation to buy the property
They will refund this expression of interest deposit if you don't end up entering into a contract to buy the property.
The agent must also let you know if someone else makes a later offer on the same property.

(information taken from the Dept of Fair Trading site)

This knowledge begs the question, then, as to why REA's would bother asking for such useless deposits? They mean nothing, are fully refundable and obligation-free! The reality is, however, that once potential purchasers hand over money (no matter if it's a small amount like $500) the more tangible the commitment then becomes to the buyer. It appears that psychology plays a big part here in cementing the sale, in the mind of the purchaser.

 

Have to agree with that.
Its pretty much become the norm in WA over the last 2 yrs with the overheated market.
If you weren't prepared to go with the EOI first, then you petty much missed out as everything was selling off the plan way before titles or completion.

Only difference I thought was that by entering into the EOI you would get first right of refusal, but I guess that came back to the developer or vendor to honour that postition.

I know that there are lots of court hearings currently underway where, developers are refusing to settle or honour sales contracts as their constructions costs blew out between contract and completion ( as well as the market moving, sometimes 40% or more)

Probably be a different story when the wheel turns over the next 18 months when some of the purchasers may face negative equity, then it will be their turn to look to breaking contracts for off the plan purchases.

But EOIs' are a funny thing ..... no obligation and no commitment, but maybe useful for a vendor to guage interest in the market..

Kevin

 

And in the meantime the RE Agents invest the kitty and get interest paid on it?

How quick do you get your money back? What is the average size deposit?

I haven't paid it before.

 

I don't think so.
If it goes into their trust account, they don't get the interest due ( if any)
Usually goes into a fidelity fund for when agents misuse their trust account.
If a client ends up out of pocket, then the fund pays out.
EOI deposit can be $500 or $1,000 or even $100
Depends on what the developer/agent decide to charge.

Would expect you to get your money back if you terminate the EOI and decide not to go to contract stage.
Otherwise the deposit goes towards the contract deposit, which tends to be 10% of purchase price.

Depends what market you're playing in as to whether they are necessary or even successful.
Here in WA a lot of stuff is now going to market by ballot which is even nuttier....

Previous ballot required a $2000 chq attached to the application.
Current ballot requires a $5000 chq.

Kevin