Picking the Right Amount for Your Binder Deposit
When making an offer on a home, potential buyers must include a binder deposit. This is a good faith deposit. But, as with the offer, this can beg the question: How much is enough?
Susan Thompson of Smith, Thompson, Shaw, Minacci & Colón P.A. points out that while throughout most of the South it is common to see a binder deposit for roughly 10 percent of the offer on the home (e.g. a $20,000 deposit for a $200,000 home), in the local market a binder deposit of $1,000 is the most common — regardless of the property’s value or size.
“In our area it’s more of a formality,” she said, pointing out that buyers are interested in making the lowest deposit possible, while for sellers a higher deposit serves as insurance in case the closing does not go through due to buyer default.
The binder deposit is typically held until closing, and then applied straight to the purchase price. If closing fails, it is important to note that the deposit cannot simply be released to either party. Thompson stressed, “When I hold a binder deposit in my escrow account, I can’t release it to anybody; I have to have an agreement by the parties to release it or a decision from the court.”
In determining what binder deposit is right, Thompson said, “I would try to bring as little as possible.” If the majority of the purchase will be made through loans, a smaller cash deposit can be supported by the argument that the buyer does not want to take more cash out.
For sellers, Thompson suggests focusing not only on the deposit amount, but on the buyers’ ability to close. “I would want to know that the buyer is able to perform the contract,” she said. If the buyer is making an offer, 95 percent of which is covered by a loan, ask for the remaining 5 percent that they are supplying to be put down as the binder deposit. It will be applied to the purchase after closing, anyway.