Earnest money deposit

We have bought, and sold, boats in TX, MD, NC and almost in FL. In all those cases the earnest money deposit was made after buyer and seller agreed on a price. I am now dealing with a broker in LA who insists that I submit a 10% deposit with my original offer before he will even contact the buyer.


Seems fishy to me, why pay the wire charges if you may never agree on a price?


Bob

That was the norm when I was a yacht broker in Annapolis many years ago. It was done to weed out the wheat from the chaff as an indication of seriousness on the part of the buyer. It also protects the seller from incurring yard haulout and other costs if the buyer doesn't pay them.

OTOH, I think it is extremely rare for the buyer to back out of a contract, after accepting the survey and lose the deposit. It is almost always returned even when not required by the contract.

Since I was a broker, things have changed. I just sold my mother's house with a 1% deposit. But recently in dealing with a somewhat squirrely buyer my yacht broker asked for a 10% deposit before presenting the offer to me- he was tired of putting up with the guys's crap. Never heard from the guy again.

The boat recently sold, again with a 10% deposit.

David

Common now is that upon signed acceptance of your offer you wire money quickly or your offer is moot.


Just closed on my boat The buyer saw and made an offer on a Sunday and I signed it the same day and they wired money Monday.

The point is, why incur the wire fees until you have agreed on a price?

I don’t think I would be willing to pay a deposit just to start negotiating on a price. On my past three transactions, a price was agreed upon subject to sea trial and survey. All costs of the survey were paid by the buyer, at the time it was done. Ie, the boat didn’t get hauled or leave the slip until the yard and surveyor had check in hand.

Deposit was about 10% and if the boat failed survey or was found to be unsatisfactory at sea trial, then the deposit was returned.

I see no reason to pay a deposit just to submit an offer and would likely refuse.

dhays said:

I see no reason to pay a deposit just to submit an offer and would likely refuse.

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My point exactly.

Brokers like to have the 10% in their account quickly. After all, it is their commission which they may or may not have to share. But be careful.

Last boat I sold in 2010 the broker took the sellers 10% and vanished. Now, this was after the great recession and brokers were going under daily. Times are better now.

However, now I always insist on a 3rd party escrow company. 10% down after signed/agreed contract. Full payment after all contingencies satisfied. Escrow company disperses funds.

As I recall, I have paid the 10% deposit with each of the initial offers on all of my boats (5 so far). It has never been a problem, and the $ goes into an escrow account. I agree with whomever said that it helps separate the real buyers from the tire kickers. Deal with a reputable broker or seller, and you should be okay. YMMV.

Cheers, Bill

All I'm saying is "don't use the broker's escrow account". Use a 3rd party. The broker's bond will not come close to make you whole should there be a problem.

dhays said:

I don’t think I would be willing to pay a deposit just to start negotiating on a price. On my past three transactions, a price was agreed upon subject to sea trial and survey. All costs of the survey were paid by the buyer, at the time it was done. Ie, the boat didn’t get hauled or leave the slip until the yard and surveyor had check in hand.

Deposit was about 10% and if the boat failed survey or was found to be unsatisfactory at sea trial, then the deposit was returned.

I see no reason to pay a deposit just to submit an offer and would likely refuse.

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+1 Successful Sea Trial...Survey... Personal Inspection 10% after price agreed

Insist on third party escrow, boat US does thaat service. Make sure that all the "subject to " are full and complete because that will be the only reason to get your deposit back if something is not right. I always include survey and sea trial "satisfactory to the buyer".
If you spent hours inspecting the boat before the offer you will have a better chance of being satisfied.
If you dont know boats a surveyor can be hired to do a visual inspection with a full " does everything work properly " survey later.

That seems out of line. How much effort is involved in presenting your offer to the seller ? Its nothing more than a 5 minute phone call. Maybe a few offers and counter offers...but that's his ( or her ) job !!!

If I were the broker, I'd want to bring every offer to the seller, to show how well I was markeitng their boat.

The one caveat I'd have is if you were only offering 75% of the asking price or something like that. Then he just might not be taking you seriously and wants to test you. He should keep the process moving and soon enough you'll have to take a weekend to go look at it, hire a surveyor, etc. Once you have to start spending money your intentions will be obvious.

Benthic2 said:

That seems out of line. How much effort is involved in presenting your offer to the seller ? Its nothing more than a 5 minute phone call. Maybe a few offers and counter offers...but that's his ( or her ) job !!!

.

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Actually, there's another reason for requiring the deposit with the offer and that is to protect the position of the buyer. Without the deposit, there is only discussion but there's really no legal offer because of lack of consideration.

Now, I don't find the lack of a legal offer to be a negative in most cases as people aren't lined up. You discuss and reach price agreement and then make an offer. But don't think you have any protected position until then.

There is a third alternative rarely used in boats. Offer is accompanied by a small part of the total deposit and upon acceptance the full deposit is paid. This first amount is referred to often as earnest money. So, it might work on a $100,000 boat that $1000 in earnest money is paid with the offer and upon acceptance then 2 or 3 days to deposit the remaining $9000 of the deposit.

I personally wouldn't write a check for the right to make an offer. Besides if the broker wants 10% is that of the listing price or 10% of your offering price... Once you have examined the boat and made an accepted offer. Then you write the check for 10% of the accepted offer... And that money is placed in a 3rd party escrow account

I agree with BandB, without it there is no real legal offer from what I have read.

plus, unless you are buying a megayacht, the brokes I have dealt with hold the check until the real negptiations start meaning an offer is accepted (I am sure that varies)...

and If I were a broker, I wouldnt waste my time with low nall offers and tire kickets without the deposit.

just make sure you read the fine print....

if you are trying to lowball some boat tbst isnt worth near the asking price...the broker probably knows that and will stay in touch if his price is close to yours.

not sure if tying up a deposit before or after an offer is accepted is that big a deal except when talking both ends of the yachting spectrim

Look at it from the broker’s perspective. He gets stupid calls and stupid offers all the time, how is he to know if you are for real. Then he has to sell your offer to the seller. So he gets the seller to take your offer and now you Won’t back it up with a deposit, instead you make a new lower offer or worse advertise the sellers willingness to drop the price to this new level. The broker now looks like an idiot and maybe even harmed the seller.

What you should do is have a buyer’s broker. The buyer’s broker can take a promissory note from you and then report the deposit in place. The seller’s broker will be happy to present the offer knowing that you are for real.

Yes you can always back out and get your money back but tire kickers won’t even sign a promissory note.

For me it would be totally dependent on the Broker. Mark Bowerman (TF member Daddyo, Grace Yachting group) or Curtis Stokes ,no problem. I just don't have enough experience with other brokers...Not saying others are bad, just don't know.

DLP said:

+1 Successful Sea Trial...Survey... Personal Inspection 10% after price agreed

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I have personally never looked at a broker offered boat that would let you sea trial before making an offer and deposit. Otherwise everyone and his brother would be out for joy rides every weekend.

Deposit before an offer is negotiated? That's different.

BDofMSP said:

I have personally never looked at a broker offered boat that would let you sea trial before making an offer and deposit. Otherwise everyone and his brother would be out for joy rides every weekend.

Deposit before an offer is negotiated? That's different.

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I agree with you. Maybe just the way I wrote my comment

1. Agree on price
2. Give deposit
3. Successful surveys/Sea Trial/Personal Inspection/Oil Analisis
4. Close on the boat and then start spending thousands of dollars

If I make a deposit with the initial offer, how do I know the broker will even contact the seller? How soon? What proof do I have that he has my money? Maybe he is just collecting deposits? Have never bought or sold a boat under those conditions.

Because you have a signed purchase agreement? Contract law?

Is the broker a member of California Yacht Broker Association? If he is he is bonded and governed. If not I wouldn’t deal with him.

The way he puts it, there is no signed agreement till the seller agrees to a price. In the meantime the broker has my money and I have nothing in writing.

IMO there is no way to force a buyer to close the sale. IMO deposits are really only forfeited if there is real damage to the seller.

A short timeframe to close doesn't need a big deposit because the seller will have no real cost involved if the sale doesn't close. Al long time to close is a different matter as the seller is unable to sell to someone else during that time.

BobH said:

The way he puts it, there is no signed agreement till the seller agrees to a price. In the meantime the broker has my money and I have nothing in writing.

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Sorry I didn't read it that way. Yes I would never give them money with nothing signed.

It sounds to me that the broker just doesn't trust sellers (or this one in particular). Maybe he was burned in the past. Still, I would put up $1000 as a good-faith tool, but that's about it. There is no way I would cough up 10% every time I wanted a broker to submit an offer to a seller. No way in hell. All it takes is a call from broker to seller to make a deal. That is not worth 10% of $150,000 boat.



I am generally against so-called buyer's brokers, but in this case, if you really want the boat this might be the best way to get it.

Earnest Money?

Here in California I have over the years bought and sold several boats in the 30' range, sail and power. All through brokers. As a buyer, I have always been asked for a deposit, 10% of the OFFER price. When the final pre-survey price is negotiated, I have been asked to increase the deposit to the new price. I have never had a problem with this....it's just the way things are done. As a seller, I would never even respond to any offer that came in without a deposit, since clearly the buyer is just not serious! In the few cases where we did not reach agreement or I backed out after a bad survey, I have always received a full refund within a few days.
Here in California the brokers are licensed by the state and must have escrow accounts. There have been a few cases of disappearing brokers, but it is really pretty rare.
Just sayin'.....
oldersalt

psneeld said:

I agree with BandB, without it there is no real legal offer from what I have read.

plus, unless you are buying a megayacht, the brokes I have dealt with hold the check until the real negptiations start meaning an offer is accepted (I am sure that varies)...

and If I were a broker, I wouldnt waste my time with low nall offers and tire kickets without the deposit.

just make sure you read the fine print....

if you are trying to lowball some boat tbst isnt worth near the asking price...the broker probably knows that and will stay in touch if his price is close to yours.

not sure if tying up a deposit before or after an offer is accepted is that big a deal except when talking both ends of the yachting spectrim

Click to expand...

Yup, as BB and PSN say. Weeding out the tire kickers is required.

I have sold boats for over 20 years. In the old days when we would take paper checks, I would ask a buyer to give a deposit to show good faith to a seller. Maybe just enough deposit to get the sellers attention and the balance of the deposit after an agreement was signed by both.
Now we don't take checks for anything, only wire transfers.
The purchase agreement I use is the standard form of the International Yacht Brokers Association, IYBA, (used to be Florida Yacht Brokers Association) and that states that the deposit must be sent within three business days of agreement on the price. If an offer is low sometimes I suggest the buyer gave some deposit to entice the seller. If a buyer is concerned about a $25 wire fee, will he buy a boat?
Brokers in California and Florida have to be licensed, so you have some protection there. You can go to a brokers website and find out how long they have been in business, if they are division of a marina or shipyard, maybe if they rent or own an office or multiple offices, if they only work from the trunk of their car. A little due diligence should alleviate concerns about sending a deposit.
Sometimes sellers will insist an a deposit with an offer if they have made agreements previously but did not get the deposit.

It's simple.

The 10% represents the commission the brokers receive so at the closing, the 90% remaining payment goes to the owner and the brokers don't have to wait for their payment.

Plus, they're not wasting time for all the reasons people mentioned before.