How Strict Are Estate Agents with The 10% Deposit Rule upon Winning an Auction?

mrvaluepack on 18/10/2021 - 17:00
Last edited 19/10/2021 - 18:32 by 1 other user

Planning to bid in my first online property auction this weekend in VIC.

Was wondering how strict are the agents nowadays with the 10% deposit rule?

If the property is sold for $1.5m, am I expected to pay $150k on the Saturday I win? Am I able to negotiate a payment plan to stretch it out until next Friday (eg: 20k per day)? How flexible are the agents with negotiation on the deposit payment terms?

Reason for asking this is with interest rates at 0.1%, I don't really want to keep $150k+ in cash for the chance I "may" win something. My assets are currently mostly in ETFs which need T+2 settlement and plus withdrawal time.

Update: I've registered to bid on a couple of properties and spoken to the respective REA, one said 5% is fine. The other said 1% is ok on auction day and 9% balance the next Friday.

Financial

Comments

  • Archi on 18/10/2021 - 17:15
    +11

    you arrange a blank bank cheque with your bank

    and when you win the auction.. you write up the deposit amount on the spot and hand it over..

    or you could do the whole suitcase thing or brown paper bag.

    • Kangal on 18/10/2021 - 19:45
      +23

      What about a white cloth bag with a green $ sign?

      • seal the deal on 20/10/2021 - 08:00
        +3

        Dollar sign eyes emoji is also acceptable for first home buyers.

      • weezlebub on 19/10/2021 - 09:47
        +5

        it takes more than an hour to count 900k in cash … just saying …

        • dy4me on 19/10/2021 - 10:48
          +1

          Not if you have a money counting machine the banks/drug dealers have :p

          • Plankton on 19/10/2021 - 11:11
            +37

            @dy4me: I bet they wished they had one of those when I paid cash for my mansion. They were there all day counting the 17 million.
            I was on the yacht with 10 of my youngest and most beautiful girlfriends however so it didn't bother me. It was only my one servant I sent to the auction who had to wait, but I gave him a 50k bonus for it.

          • tomsco on 21/10/2021 - 14:13

            @dy4me: Kogan's got your back

      • cuteseal on 19/10/2021 - 17:17
        +3

        Lol fantastic post.
        Did they then hand you off to the after sales consultant to upswell you on paint protection and tinting?

    • aboogee on 21/10/2021 - 12:49

      Well the problem is if the agent went to cash the cheque there would be no cash and op said it takes t+2 to settle his etf

  • Hardlyworkin on 18/10/2021 - 17:21
    +2

    Usually 10% though call the agent and see if they are willing to negotiate some terms (I doubt the 20k per day in a hot market though can always ask.). Usually the amount is payable on the Saturday or next business day. Bank cheque or EFT.

      • Hardlyworkin on 18/10/2021 - 17:43
        +65

        Are you serious about buying a house or not? If you want to be in the game have your money ready to go.

          • dizzle on 18/10/2021 - 18:51
            +35

            @mrvaluepack: To ensure people don't bid on houses that are too expensive for them and then back out.
            They don't want people bidding with a pre-approved mortgage, then get declined for having bid over the approved amount.

            People keeping 200-300k cash in banks nowadays?

            It's easier to get a bank check on the monday than to transfer $20k for 5 days. If you want the house, you need to make sure the money is easily accessable. If you want the investment, then keep the money locked up.

          • pharkurnell on 18/10/2021 - 19:44
            +26

            @mrvaluepack: Your buying a house, not a chupa chup

          • tikei on 19/10/2021 - 16:18

            @techlead: How are you off ramping into fiat? Just normally and pay the CGT?

            • techlead on 19/10/2021 - 18:53
              -4

              @tikei: I'm taking out a crypto loan. No CGT involved.

              I'm going to use Celsius. I will transfer $10 mil of Bitcoin as collateral to take out a 25% LVR loan at 1% pa interest, so I will get $2.5 mil cash.

              • tikei on 20/10/2021 - 01:28

                @techlead: How would you pay off the mortgage? Take out more loans against your crypto?
                Have you looked into becoming a citizen by investment in some tax-free country?

                • techlead on 20/10/2021 - 09:57

                  @tikei:

                  How would you pay off the mortgage? Take out more loans against your crypto?

                  I have a day job, I can easily pay the mortgage with my salary. I'm also getting interest on the rest of my crypto portfolio which will easily make the mortgage repayments as well.

                  Have you looked into becoming a citizen by investment in some tax-free country?

                  Yes, but it would involve moving to another country for a period of time. I can't be bothered doing that.

              • bman20 on 20/10/2021 - 11:28
                -2

                @techlead: Oh boy, i fear for you. If you think taking out a crypto loan to buy a house is not a CGT event you are sorely mistaken. Nowhere is it a requirement that you need to convert your crypto to another currency for a CGT event to occur, any exchange of crypto for an asset is a CGT event.

                • techlead on 20/10/2021 - 11:59

                  @bman20: Borrowing against an asset do not trigger any CGT event.

                  Would refinancing for a property to take out equity trigger a CGT event? I'm not exchanging any asset, I'm putting my asset down as collateral for a loan. There is no CGT event.

                • dji1111111 on 20/10/2021 - 19:28

                  @bman20: How about you don't engage in a discussion you have zero knowledge about. Taking out a loan against crypto certainty doesn't trigger a CGT event.

          • techlead on 20/10/2021 - 09:58
            -1

            @techlead: What's with the negs lmao. Do people like 0.1% interest?

            Well, you do you, enjoy your 0.1% on your trash.

            • dji1111111 on 20/10/2021 - 19:27

              @techlead: Any sign of wealth or luxury doesn't sit well with many people on ozbargain. They are either jealous or assume it's fictional

              • techlead on 20/10/2021 - 20:03
                -1

                @dji1111111: Makes sense. I'm not affected, not looking for validation here. Hopefully I can open some people's eyes to the new world of cryptocurrencies.

                Not financial advice, they need to do their own research.

      • mooboy on 19/10/2021 - 18:50
        +2

        What if its $2m or $3m property? People keeping 200-300k cash in banks nowadays?

        They do if they're planning to buy a $2m or $3m property

  • ausdday on 18/10/2021 - 17:37
    +4

    keep $150k+ in cash for the chance I "may" win something. My assets are currently mostly in ETFs

    You are assuming the ETF will go up next week?

    • mrvaluepack on 18/10/2021 - 17:38
      +5

      Maybe, certainly better chance than 0.1%.

      • ausdday on 18/10/2021 - 17:41
        -1

        have you consider the possibility, that you sell the ETF this week to prep the cash. You didn't win the auction, and next week ETF drops and you buy more units with 150k ?

        • mrvaluepack on 18/10/2021 - 17:42
          +7

          Dont really wanna trigger cgt event if i dont win.

          • DonWilson on 20/10/2021 - 01:28

            @mrvaluepack: This is why whenever you ask people if you should invest your savings into an ETF while saving for a home the advice is generally no - you can't be assured of the short term performance of the ETF and you need the cash liquid.

  • terlalu on 18/10/2021 - 17:44

    just write the cheque - they'll probably deposit on a Monday and then it'll take a couple of days to clear it anyway, so just make sure there's money in there by Wednesday. That gives you 4 days from Sat.

    • terlalu on 18/10/2021 - 17:45

      oh wait… if it's an online auction it could just be an EFT request. no cheques.

      • mrvaluepack on 18/10/2021 - 17:46

        Thats why i mentioned 20k transfer tranches due to online limit.

        • terlalu on 18/10/2021 - 17:57
          +4

          likely the agent will get you sign an EFT authorisation for their bank/escrow to debit your account, so you won't have to worry about your 20k limit.

          • Seraphin7 on 18/10/2021 - 19:37

            @terlalu: Correct. This is the "new way" these matters are facilitated. While I've not done it myself, as @terlalu notes this is the way most people seem to roll these days as people don't have cheque books any more and obviously the agent/vendor doesn't want to be stuffing around with $20k rolling in (or not) over what could be several weeks.

  • Bafranz on 18/10/2021 - 17:44

    You're going to have to have some liquid funds to secure your bank cheque if that's the way you go

  • AndyC1 on 18/10/2021 - 17:51
    +3

    You can ask for a 5% deposit, which is normal for allot of people and is normally okay. Also you can ask to pay the deposit the following Monday via a bank cheque.

    BUT make sure you ask about these two items and get the okay before the auction.

    Some other pointers:
    1) Talk to your conveyancer or solicitor (convenancer in a solicitors firm) about these two items to see if they can ask.
    2) Make sure your conveyancer goes over the contract before you sign it, so they will need a copy before the auction day.
    3) As per 1 & 2 you need a conveyancer….
    4) Hope you have the finance done and dusted and in writing….

    • mrvaluepack on 18/10/2021 - 18:28
      -3

      Thanks. Cant i negotiate only after i win?

      • Settero on 18/10/2021 - 18:47
        +8

        No , you can try , but why would they at that stage? I had my solicitor conveyancer check the contract and negotiate a lower deposit prior to the auction. I would hope you are checking the contract prior to going to the auction…

        • mrvaluepack on 18/10/2021 - 20:23

          Yes i have, it only says what will happen if the buyer defaults on settlement. Nothing about restructuring the deposit terms or not paying the full deposit amount.

        • pndl on 19/10/2021 - 16:02

          To be fair with OP, VIC is a special case where auction is not binding at all. It is just a show. You can bid and 'win' and walk away legally without sign the contract.

          In other states its more serious, you would negotiate the terms first before the auction and then bid based on those terms.

      • Seraphin7 on 18/10/2021 - 19:33
        +5

        No. That's the whole point of the auction. You negotiate terms prior to the auction and then if you are successful the agreement is made on those terms. The auction effectively then only leaves the price as the final point of negotiation … with the winning bidder and the vendor then agreeing to transact at that price on the previously agreed terms.

      • AndyC1 on 18/10/2021 - 20:03
        +6

        If you do not want to read what people have said then why did you post in the first place?

      • MrHyde on 18/10/2021 - 20:13
        +3

        No. You need to negotiate this before bidding. We did something similar where we had agreement beforehand that we would pay the 10% deposit by Wednesday following week and explained to them we needed to move a few things around and banks needed some lead time. We had provided evidence of us having the funds and they had agreed to those conditions.

        But not having agreement upfront; the expectation would be 10% straight after the auction as per the terms of the auction - which are read out before the auction as well.

      • rhimes on 18/10/2021 - 21:57

        No, as you've bid under the standard terms. This could count as a default.

      • mikekiwimike on 19/10/2021 - 10:03

        This is not any sort of advice this is just my purchasing experience of 2 properties in the last 2 years without the funds ready …….. Of course you can negotiate, read what the rules around failing to pay the deposit says…. even if you didn't pay for a month you would only be liable for penalty interest at the rate of 14% PA (I think).

        Win the auction on a Saturday you can offer to pay 10k and the rest on Tuesday ……. Again not financial advice and read the contract before you bid!

      • Ashless on 19/10/2021 - 17:26

        Its more likely the selling agent will accept a 5% deposit before the auction starts. Make sure you get this in writing.

  • djkelly69 on 18/10/2021 - 17:54
    +1

    Did you ask the agent? They would deal with this query 5+ times per auction. IME (not in Vic) different agents have different procedures for how they deal with it.

    Also accepting a 5% deposit at exchange is very, very common just north of the Vic border, so might be worth enquiring about as well.

  • cloudy on 18/10/2021 - 18:12
    +2

    Chat to the agent, but it’s a little bit flexible in my experience. They also understand that some banks have a 10k per day transfer limit so taking 150k can take time.

    • mrvaluepack on 18/10/2021 - 18:23
      -4

      Yes, thats what i am trying to understand. How much flexibility do they really have?

      • Seraphin7 on 18/10/2021 - 19:37

        The agent has as much flexibility as the vendor will give them.

      • pharkurnell on 18/10/2021 - 19:48
        +1

        Try asking the agents.. that might work.

    • serpserpserp on 18/10/2021 - 22:08
      +4

      They also understand that some banks have a 10k per day transfer limit so taking 150k can take time.

      They also understand you can easily talk to your bank and arrange to change that limit.

      • cloudy on 18/10/2021 - 22:34
        -3

        Talk to bank? What world do you live on… they’re useless

        • serpserpserp on 19/10/2021 - 07:13
          +8

          The world where I've asked them to do it before numerous times. Very easy for adults.

        • bbinc on 19/10/2021 - 09:27

          Find a bank that allows larger transfers on request. I have no trouble moving 100k. Or use two banks that will do that - there’s $200k. Try some of the cash management providers. Even Nabtrade will do it over the phone.
          Good luck with your purchase!

        • Gina Rinehart on 19/10/2021 - 22:07

          I did it with ING for 70k no problem a couple of years ago. Just had to call up and my limit was then increased to that with various authorisation (SMS etc.) first.

    • shnookums on 19/10/2021 - 09:40
      +1

      If you go into a bank branch they can increase your limits. We went in, increased to $100k, made the payment then had them decrease it again.

      No one's transfer $150k at $10k per day for a house deposit.

  • TheMindsetTraveller on 18/10/2021 - 18:20
    +1

    I have negotiated a 2% deposited once, but it is totally up to the seller and you must get approval (ie reduction in deposit amount) in writing by the seller's solicitor prior to the auction. If you win, you hand over the letter to the agent and pay the % as allowed by the seller.

    • mrvaluepack on 18/10/2021 - 18:27
      -8

      Cant i do this only after i win?

      • pasey25 on 18/10/2021 - 18:35

        Nope, beforehand.

        Auctioneer will disclose the general terms (incl deposit) before he or she takes any bids. If you want to deviate from it it’s your responsibility to agree with the seller (via the agent) prior to auction

      • gromit on 19/10/2021 - 14:51
        +1

        After you win you are bound by the terms of the sale. Negotiation must be before.

  • BensonP on 18/10/2021 - 18:35
    +3

    Talk to the agent before the auction. They'll take as low as $2000 on the day, with the rest of the deposit on the next business day.

    Probably asked 50 agents over the last 10 years, never had an issue.

    • mrvaluepack on 18/10/2021 - 19:12
      -3

      Thanks, how about 20k each day starting from the auction day until the 10% is reached?

      • BensonP on 18/10/2021 - 19:19
        +17

        You could always ask, but they'll probably just laugh.

    • jess112 on 19/10/2021 - 12:57

      I've done this too. At least in the ACT there needs to be an exchange of money for the contract to be valid on the day of the auction. I believe I paid $2000 cash at the drop of the hammer then transferred the rest within 24 hours. Strongly doubt you could do 20k a day until the 10%…

  • Seraphin7 on 18/10/2021 - 19:32

    If the property is sold for $1.5m, am I expected to pay $150k on the Saturday I win?

    Yes.

    That said, you can negotiate a different arrangement with the vendor prior to the auction. You can attempt negotiate whatever you want … what the vendor may agree to is an entirely separate matter.

    Having (limited) experience in this space, a vendor will typically allow for a 5% deposit on the day with either the 10% to be made up by a certain time, or at the very least noting that you are still liable for 10% even though you have only paid 5%.

    The ultimate answer is whatever you agree with the vendor prior to the auction.

  • tamckinnon on 18/10/2021 - 20:00
    +1

    Having just secured a property in VIC after trying for 2 years.. My 2-cents.

    Read the Contract of Sale & S32 prior to bidding as it states via contract of sale that when you buy via Auction it's effectively unconditional with no cooling off so pay up.

    If you want to negotiate terms it needs to be 3+ business days prior Auction or, a private sale.

    Also, Banks can do transfers as high as you would like just need to call beforehand and if you're taking up the FHSS scheme you need to apply to have it released which can take weeks. You have 2 years to spend it or pay the higher tax.

    • Zephyrus on 18/10/2021 - 23:02

      If you've done the FHSS scheme, I'm not sure how it works mechanically, but could I use apply for the money after having bought the place? My plan was to use my emergency fund/borrow it from family, then use the FHSS scheme money to pay it back, rather than risk having to pay extra tax.

      • miwahni on 18/10/2021 - 23:22

        You might want to check with the ATO about this. From my understanding you can only apply to have the funds released towards the purchase of a property, and not for repayment of personal debts regardless of how they arose. And if you already own a property ie your purchase has settled, you are ineligible to apply for a release of funds under the FHSS. That's how I understand it, DYOR.

    • mrvaluepack on 19/10/2021 - 06:56
      +1

      Paying up is not a big deal. Im not even planning on financing, as i have enough to buy houses with cash. Its just that i dont want to hold cash at the moment because of shitty interest rates. And people spend on average 1 year looking for houses.

      With inflation at 3.8%, i dont want my cash sitting there at 0.1% interest rates for that long a period.

      • bbinc on 19/10/2021 - 09:32

        Macquarie have 1.1% welcome and .7% ongoing

      • derrida derider on 20/10/2021 - 10:15

        So if you have $100k sitting in that ripoff at call account for a week at 3.8% inflation then it will lose $71 in value. That seems like a small fee to pay to stay liquid enough to buy a million dollar house at auction.

        • mrvaluepack on 20/10/2021 - 10:17

          What if you dont win the auction? Keep it there for 12 months?

  • mrvaluepack on 18/10/2021 - 20:29

    From a Section 32 of a property i came across:

    Payment of the deposit may be made or tendered:
    (a) in cash up to $1,000 or 0.2% of the price, whichever is greater; or
    (b) by cheque drawn on an authorised deposit-taking institution; or
    (c) by electronic funds transfer to a recipient having the appropriate facilities for receipt.

    Does this mean 0.2% only required? If so, easy days.

    • Zephyrus on 18/10/2021 - 23:04
      +5

      No, it's saying that's the maximum amount you can pay in cash.

    • Piranha2004 on 20/10/2021 - 07:51

      Those are jus tthe standard terms in every s32 doc. You need to read the auction terms

  • netjock on 18/10/2021 - 20:39
    +7

    Don't ask us, ask the agent.

    • Presence on 18/10/2021 - 21:58
      +6

      Hmm what if they don't give an answer I like? Can I come ask you then?

      • netjock on 19/10/2021 - 11:05
        -1

        Can I come ask you then?

        That is like I tell you there is bubble gum flavoured Coke at Woolworths. But it doesn't change the reality.

  • bloom on 18/10/2021 - 21:08
    +11

    Just fill out an IOU after you win 👍

  • KaTst3R on 18/10/2021 - 22:14
    +1

    Asking for 5% is pretty common. An additional clause will be inserted in the contract saying in the event of default, the payment will be 10% of contract price payable to seller. So you are still liable for 10% just that a 5% cash upfront now.

    You will need the contract to be amended prior to auction.

  • HeadTheWall on 18/10/2021 - 22:15
    +15

    If you are on here asking these stupid questions and not listening to what you are being advised are you really ready to spend this much money?

  • justgooddeals on 18/10/2021 - 22:41
    +2

    Good luck. It’s sellers market atm. Vendors don’t need to negotiate.

    OP you are planning on buying house not Toaster on lay-by at Kmart.

  • morse on 19/10/2021 - 08:18
    +1

    If you’re definitely going to buy something in this price range within the next few months it isn’t going to make much difference when you sell your EFTs. You could well miss out on the property if you don’t have the deposit ready to go. If you’re really wanting to buy soon you’ll need to have cash ready.

  • pinnacle on 19/10/2021 - 08:48
    +1

    When we bought our property through auction, though I had the money in the bank account, I fell short of $5K for the deposit amount due to EFT limits. REA was ok for us to have that paid by Monday (the auction was on Saturday). As another poster mentioned above, speak to the agent and have this arranged in advance.

    • mrvaluepack on 19/10/2021 - 08:56
      -6

      Thanks, how long ago was it though? The houses im looking at are ~$1.5-2m. No banks allow $100-200k EFT limits.

      • pinnacle on 19/10/2021 - 09:26
        +1

        One year back. As we were going from one auction to another and missing out, I had the money in multiple bank accounts (UBank, BOQ & Macquarie) each with a $20K maximum limit.

      • TheBooleanOne on 19/10/2021 - 09:36
        +4

        Many agents use DEFT Auction pay now, which doesn't have daily limits. I used it last year and was very easy to do. You still need funds in the bank account though.

        • mrvaluepack on 19/10/2021 - 09:55

          Ok thanks for that info.

      • Presence on 19/10/2021 - 15:00
        +2

        No banks allow $100-200k EFT limits.

        Yes they do. You win the auction, then you call the bank, change the limit, do the transfer, then call the bank again. Easy

        I did it myself 2 years ago.

  • OzHunterNSW on 19/10/2021 - 10:01
    +1

    I think you can not simply just rock up and start waving your hanky. You have to register your interest and show you have the money to pay the deposit. Contact a real estate and enquire with them.

    If you can't even drum up the deposit, how do you expect to pay the loan?

    • mrvaluepack on 19/10/2021 - 10:12

      Have you ever bid at an online property auction before? You can just register with your phone number and address and start bidding. I have the assets to pay for the house, its just not in cash and will take 3-5 days to liquidate and transfer.

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