Non-refundable deposit

Q: I’ve offered on a property to buy and am desperate to secure it. Should I offer to pay a non-refundable deposit?

A: Non-refundable deposits sound great in theory, but in reality they can sometimes prolong or hinder a property purchase. The option of paying a non-refundable deposit usually comes up in the event you are facing a competitive bidding process or trying to agree a purchase with a vendor who has perhaps been stung by a previous buyer pulling out. The choice to pay a deposit can be put forward as a means of giving yourself a competitive advantage and to demonstrate a genuine commitment to the property purchase and we’ve won many sealed bids for clients this way. In some cases we have paid the deposit and we’ve pushed ahead with the purchase. However, in other cases, we never ended up making the deposit payment as it was agreed by all parties that it was better to simply press ahead with the purchase.

The reason for this is because agreeing the terms of a non-refundable deposit does sometimes take just as long as actually purchasing the property itself. You will need to agree every eventuality where the deposit might be returned or forfeited. For example, it might be agreed that if ‘something major’ is flagged up in a building survey, the deposit will be returned to the buyer. But, the deposit agreement needs to define what that ‘something major’ actually means – is it certain types of remedial works such as damp, which mean it can be returned, or is it a certain monetary amount of works required? If so, who defines how much the works would cost, and so on.

By the time the solicitors have gone back and forth on this, sometimes all goodwill between parties can have evaporated and weeks have gone by without any progress towards the actual purchase having taken place!

I would advise any buyer going down this route to check that their solicitor is comfortable dealing with the option of a non-refundable deposit and how much this might increase their fees, if at all. Lastly, only put down as much of a deposit as you’re willing to lose. We’ve had clients pay non-refundable deposits ranging from £2,000 to £100,000 and each time we made sure that they were comfortable with the risk of losing it if the purchase didn’t progress in line with the deposit terms agreed.

If you have a question you’d like Jo to answer please email or tweet her @joeccles.