What is a deposit?

by Ernie Gorrie ⌂ @, Monday, August 10, 2020, 16:56 (75 days ago) @ katheworsley

When I put down a deposit for something, I have never assumed I would get the money back if I cancelled.

I assume that a deposit is a commitment by me to conclude an agreement and a commitment by the other party to conclude an agreement. If I break the commitment, I can't assume that I would have the deposit returned. That is sort of the purpose of a deposit. What is the point of a deposit that I can expect to have returned if I renege on the commitment?

When I have required a deposit for something, I have usually offered a two-part aspect of a potential refund.

The initial, smaller amount, is not refundable. It (i) covers costs associated with administrative work, and (ii) indicates a sincerity of commitment by the purchaser.

A second, larger deposit is refundable based on the ability to "resell" the goods or services that were committed.

Reselling physical goods is likely. Reselling accommodation or travel is highly risky. If a cancelled seat on an airline flight is not resold, the plane leaves anyway. If a week of a hotel room is not resold, the room goes unoccupied with no revenue.

My in-laws recently sold their house. On the first possible sale, they permitted the "purchaser" the opportunity for a fully refundable deposit. Days before the completion date the purported purchaser backed out and had their deposit refunded.

On the second occasion, my in-laws followed my advice and required an initial non-refundable deposit of about 1% of the price followed by a second non-refundable deposit of 25% a couple of weeks later.

Those commitments ensured that the second offer resulted in a completed sale.


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