Deposits – Too Little, Too Late

Real Estate Purchase Deposits

By James L. Goldsmith, Esq.

To state that the typical deposit is too low an amount and that it is paid later than should be is not an overstatement.

The purchase deposit, which is referred to as "initial deposit" in the Agreement of Sale, is paid within five days of execution. Why a deposit? It is not a legal requirement of a binding contract. Don't confuse a deposit with "consideration," which is essential in the formation of a binding contract. No, a deposit is not legally required, but it is a good idea, assuming that it is of a sufficient amount. A sufficient deposit is a better telltale of the buyer's interest than of the buyer's stated expressions of love for the home. Money talks.

A deposit also serves to protect against financial damage suffered by seller in the event of buyer's breach. If left alone, the seller may, upon buyer default, retain the full amount of the deposit and apply it to the actual damages suffered by seller or to the full purchase price or to retain it as a liquidated damage in lieu of actual losses incurred. Even if the agreement did not include any provision regarding seller's remedies, the seller would enjoy the benefit of Pennsylvania law and could seek actual damages incurred or sue for the purchase price.

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Pennsylvania Realtors Association

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