10% deposit @ Auctions

[WebBoard]

From: Lan Diep


How does one usually make payment at Auctions?

(a) 10% deposit with a cheque?

If the deposit money is being held in a term deposit, is it possible for the bank to issue a letter saying that the purchaser has the funds up to $xx and payment can be organised in the next few days - to avoid taking the deposit out of the term deposit, when there is a chance that the property may not be brought on the day of auction!

Any other methods?

 

[manny]

Reply: 1
From: Manny B


Hi Lan,

a few methods I have used include:
1. giving the agent a withdrawal slip to my bank account (to hold over the w/end) & showing him the passbook with the funds,
2. sign a cheque with no $$$ in that account & telling the agent/vendor not to draw it till the Monday/Tuesday (day to agree upon)
3. Giving $2,000 cash on the day to the agent (get receipt though) so that I can get a bank cheque on the next business day or two
4. Talk to the agent pre-auction if there is a problem & he/she can talk to the vendor to see if your terms are OK, ie. giving them a 5% deposit on the day OR doing what I have done in item 3 (which I had raised with the agent/vendor prior to the Auction & they were OK about it) OR even if they will take a deposit Bond (some will accept that)

I hope this helps...

Manny.

 

[Owen]

Reply: 2
From: Owen .


You have to pay a deposit on the spot if you by at auction. This can cash, cheque, whatever but remember anything is negotiable. If you negotiate a 5% deposit then this is all you need, if you negotiate a walnut as a deposit then this is all you need, if you can negotiate that a letter from your bank will do and you can pay later then this will do. Actually I'm not sure about the last one as something has to be paid to make the contract binding but you can ask.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"

 

[WebBoard]

Reply: 2.1
From: Mark Pardi


Another successful method is to negotiate an exchange on $1000 with a clause added to the contract that simply stipulates that if after exchange you were to default then the full 10% becomes payable.

Drawing a cheque and banking Tuesday idea also works as stated earlier.

Deposit bonds also work very well....you simply guess the 10% amount based on what you think you will pay.

I have personally overseen all of the above on many occasions as either an agent purchaser or buyers advocate

 

[Jester]

Reply: 3
From: John P


Hi Lan, if you are using an existing property as security and you don't have a line of credit that you can draw against, why not consider getting a deposit bond from your lender. If you know for example that the deposit at a given auction will be anywhere from say, $30,000 to $40,000 you may even consider purchasing one for $45,000.

Yes there is a cost (I think it is about 1.0% - ballpark) of deposit bond figure and it usually works on a scaled fee basis but it solves some of the problems you have identified. I believe the cost of the Deposit bond is tax deductible. Dale you may correct me on this. Hope this helps


John_P

 

[DaleGG]

Reply: 3.1
From: Dale Gatherum-Goss


Hi John

No, the cost of the deposit bond is not tax deductible as it relates to the purchase of the property and not in holding the property.

Pity, huh? It would be nice if you could.

I hope that this helps

Dale

 

[Sim]

Reply: 3.1.1
From: Sim' Hampel


Dale, since the deposit bond relates to the finance for the property, could it be classed as a borrowing cost and depreciated ? Or is it considered to be a purchase cost by the ATO and therefor added to the cost base of the property ?

Personally, I see it more as a finance related cost, as you do not NEED to use it to purchase the property, so is not a part of the purchase itself... it is purely a function of the financing arrangements for the purchase. Am I right here ?

 

[paulzag]

Reply: 3.1.1.1
From: Paul Zagoridis


Hey Dale!

I'd try to argue a deposit bond is a separate transaction concluded on settlement.

Once settlement occurs the liability of the bond company is concluded.

Of course the ATO may already have a view on this.

And my ramblings on this issue are speculative as a deposit bond for a typical 42 day settlement is not worth it to me.

Before the auction as a condition to bidding you can get vendors to agree to special conditions. E.g. I've negotiated the following
1) reduced deposits
2) an option to substitute a deposit bond within 48 hours
3) longer settlements

I've even bought a house where the winning bidder didn't have any money. The agent got them to get $500 from the ATM and exchanged on the night. I had a fun time rescinding that contract before I bought the place.

Paul Zag
Dreamspinner
The Oz Film Biz site is archived at...
http://wealthesteem.dyndns.org/

 

[DaleGG]

Reply: 3.1.1.2
From: Dale Gatherum-Goss


Hi Sim!

Funnily enough, and this should scare us really, the people at the tax office "law interpretation for individuals cell" did not know anything about deposit bonds . . .

They have taken my name and number, and will see if they can find someone who understands them, and, is willing to give an interpretation.

As I see it, we can look at the cost in 2 ways.

One is as a cost of buying the IP and this would mean that we cannot claim the cost as a tax deduction.

The other, as you suggested, is that we argue that the cost is more to do with financing the purchase and claim the full cost as a borrowing cost over the term of the bond.

I suspect that the tax office will take the more conservative approach.

I'll let you know what answer I get, when it arrives.

Have fun and thanks for the interesting thought.

Dale

 

[WebBoard]

Reply: 3.1.1.2.1
From: Anonymous


it's a common practice overseas to write a cheque with a future date so the cheque receipient can't cash it in until the date. Not sure if people do it here though.

 

[Carmel]

Reply: 2.2
From: Jane B


Hmm, this is a novel idea.

I'm looking forward to seeing what the next agent says about a walnut for deposit!

 

[see_change]

Reply: 3.1.1.2.1.1
From: See Change


I've done that in the past

Unfortunately the banks don't always look at minor details like the date or the signature when someone deposits a cheque....

see change

it's better to be guided by your dreams than your fears

 

[Simon H]

Reply: 3.1.1.2.1.1.1
From: Simon H


On the subject of 10% deposits @ auctions, i came across an advertisement for a land auction in Bowral, Southern Highlands NSW ( where Sir Donald Bradman spent many years) that may interest you, it was dated 116 years ago in 1886, the interest rate was the same as we have now.

Bowral land for auction
terms 10% cash deposit
10% in 3 months without interest
balance in 5 years at 6% interest payable 1/2 yearly

I imagine the methods of paying the deposit were limited back then though.

regards
Simon H

 

[paulzag]

Never forward date a cheque

Reply: 3.1.1.2.1.1.2
From: Paul Zagoridis


Basically banks can and do cash cheques with forward dates. The laws relating to banking covers them.

I learned this the hard way when a supplier presented $25K worth of forward-dated cheques one December 28. There went the cash buffer we'd built up to cover the post-Christmas slowdown. Wages were touch and go for a while.

So only give cheques when you want them presented unless you absolutely trust the recipient.

Paul Zag
Dreamspinner
The Oz Film Biz site is archived at...
http://wealthesteem.dyndns.org/