What is the purpose of a deposit for purchase agreement?

[GarryP]

I may be accepting an offer on Mango Mama and plan to use the BoatUs settlement service. They can hold the deposit check. What is the purpose for the deposit check?

It seems boat purchases are always contingent on acceptable survey and the buyer will have an out if they get cold feet. Typically, the deposit is returned.

What is the actual agreement concerning disposition of the deposit? If the intention is to ensure the buyer is serious, it loses it's purpose if the deposit is returned in all cases that the purchase falls through.

 

[rwidman]

I may be accepting an offer on Mango Mama and plan to use the BoatUs settlement service. They can hold the deposit check. What is the purpose for the deposit check?

It seems boat purchases are always contingent on acceptable survey and the buyer will have an out if they get cold feet. Typically, the deposit is returned.

What is the actual agreement concerning disposition of the deposit? If the intention is to ensure the buyer is serious, it loses it's purpose if the deposit is returned in all cases that the purchase falls through.

I think the purpose is primarilly to weed out the people who want a free boat ride (sea trial). Of course the meaning of an "acceptable survey " could vary from person to person, but if the survey finds no problems, it would be hard for the buyer to back out.

When I bought my boat, I had to wire $15,000 to the broker as a deposit. Although, in theory, I could have backed out and gotten my deposit back, most non-serious buyers are not going to go to that trouble.

 

[twistedtree]

Also, once the buyers due diligence period completes and they "accept" the boat, then they are obliged to follow through and close.

But I agree it's mostly to weed out non-serious buyers. Also keep in mind that as soon as the buyer starts doing a survey and hauls the boat, they are spending non-refundable money, so a buyer will likely be serious at that point.

One broker described it in what I though was a nice simple way;

- Initially the seller is obligated to sell the boat, but has no financial exposure.

- At the same time the buyer is not committed to buy, but starts to incur non-recoverable costs as they perform due diligence.

- Once the buyer "accepts" the boat, then both parties are obligated to close the deal.

 

[DavidM]

In addition to weeding out the tire kickers, the deposit ensures that any costs incurred during the survey and seatrial get paid. Under marine law an unpaid yard haul out charge results in an automatic lien being incurred against the boat.

David

 

[Talonewo]

It is twofold, show commitment and cover any cost during the survey process, for example I looked at a boat last year that had been on the hard for a few years, during our negotiation the seller made the stipulation that he would pay to launch for sea trial and survey, but if I did not purchase the boat I would have to pay to winterize all the systems again.

 

[Sailor of Fortune]

If it is anything like a real estate contract, (I don't know if it is or not) the purchase and sales agreement is not legal until a deposit exchanged between buyer and seller. Weather it is refundable or not is not an issue. $ 1.00 makes it legal!

 

[theran5317]

I may be accepting an offer on Mango Mama and plan to use the BoatUs settlement service. They can hold the deposit check. What is the purpose for the deposit check?

My interpretation of Earnest Money, it is part of a contract to demonstrate the buyer is serious, and to ensure the seller does not accept a competing offer.

 

[bobofthenorth]

What is the actual agreement concerning disposition of the deposit? If the intention is to ensure the buyer is serious, it loses it's purpose if the deposit is returned in all cases that the purchase falls through.

The terms are whatever you can negotiate and persuade a potential buyer to sign. If its fully refundable and contingent on the buyer accepting the survey then it is also meaningless.

 

[Northern Spy]

One broker described it in what I though was a nice simple way;

- Initially the seller is obligated to sell the boat, but has no financial exposure.

- At the same time the buyer is not committed to buy, but starts to incur non-recoverable costs as they perform due diligence.

- Once the buyer "accepts" the boat, then both parties are obligated to close the deal.

Good summary. Thanks for sharing.

 

[twistedtree]

If it is anything like a real estate contract, (I don't know if it is or not) the purchase and sales agreement is not legal until a deposit exchanged between buyer and seller. Weather it is refundable or not is not an issue. $ 1.00 makes it legal!

That's a really good point! It's called "consideration" and is a required element in a contract.

 

[psneeld]

The terms are whatever you can negotiate and persuade a potential buyer to sign. If its fully refundable and contingent on the buyer accepting the survey then it is also meaningless.

agreed...I have seen all kinds of "exceptions" to full refund.

 

[Larry M]

The terms are whatever you can negotiate and persuade a potential buyer to sign. If its fully refundable and contingent on the buyer accepting the survey then it is also meaningless.

When we sold our last boat in North Carolina, we had a potential buyer from Colorado. He made an offer and we asked for a $1,000, non-refundable deposit which he paid. We would take the boat off the market, it would be 3 weeks before he could do the survey & sea trial and hurricane season was quickly approaching. He did end up buying the boat.

 

[Alaskan Sea-Duction]

Make sure you read the contract IN FULL. There may be stipulations on a broker fee if you back out of the deal. When I get ready to purchase and commit a large sum of $$$, if the deal goes sour, I am going to set it up where I get my full deposit back. After all its my money.

 

[GarryP]

This was very prompt and helpful. There were a couple of considerations I would not have though about. I also found some standard purchase and sales agreement forms online which specify how the deposit is handled.

One thing the standard form does not address is consideration for taking the boat off the market or other inconveniences. In my case, if the boat isn't sold by in a certain amount of time, I will have added expenses making arrangements from another state that I could be making now before we move.

Thanks everyone.

 

[psneeld]

This was very prompt and helpful. There were a couple of considerations I would not have though about. I also found some standard purchase and sales agreement forms online which specify how the deposit is handled.

One thing the standard form does not address is consideration for taking the boat off the market or other inconveniences. In my case, if the boat isn't sold by in a certain amount of time, I will have added expenses making arrangements from another state that I could be making now before we move.

Thanks everyone.

As you know it's kinda a buyers market...more for some boats than others and yours is more of a niche boat so you can do better at negotiating than many....BUT...don't scare off or offend too many buyers with too many non-refundable clauses....

 

[dwhatty]

That's a really good point! It's called "consideration" and is a required element in a contract.

Well, it may depend on the jurisdiction.

In Maine, at least, the mutual written promises of the Seller to sell and the Buyer to buy are deemed to be sufficient to satisfy the element of consideration. No "earnest money" necessary.

 

[Papa Charlie]

This was very prompt and helpful. There were a couple of considerations I would not have though about. I also found some standard purchase and sales agreement forms online which specify how the deposit is handled.

One thing the standard form does not address is consideration for taking the boat off the market or other inconveniences. In my case, if the boat isn't sold by in a certain amount of time, I will have added expenses making arrangements from another state that I could be making now before we move.

Thanks everyone.

Generally speaking this is a risk that seller takes. Possibly during the boom around 2007 when you couldn't find a good used boat you may have been able to write something in. But today this would more than likely cause a buyer to not enter into the agreement. There should be a date for each of the steps to be completed by or cause the buyer to forfiet the deposit. If the standard agreement that you are using does not include completion dates for sea trials, hull survey, machinery survey and completion of the agreement (to name a few), then you should consider using a different agreement.

If you like, PM your email address and I will send you one that I have used. An extract from the purchase of our last vessel through a very good broker.

 

[FF]

In most cases the deposit is the brokers fee , holding it assures that the broker will get his payment if the sale is completed.

 

[Per]

i did not have any problem getting my deposit back after I had made an offer which was declined.
though later on, another sale on the same boat fell through and i made another offer which was accepted and is now my boat for 3 years.
i would recommend anyone to verify the broker is legit and in good standing with the state brokers association.