Understanding Property Deposits and Down Payments in Thailand: A Guide for Real Estate Agents

Property Deposits and Down Payments. Understanding the nuances of each is vital for a smooth and successful deal for both buyers and sellers.

Property Deposit (เงินจอง - Ngoen Jong): A smaller, initial payment to a seller to show you're serious about buying and to hold the property temporarily while you finalize the deal. It's like reserving the property.

Down Payment (เงินดาวน์ - Ngoen Dao): A larger payment made after signing the official purchase agreement. It's a significant portion of the total price, showing your strong commitment to buying the property.

Property Deposit (เงินจอง - Ngoen Jong)

Think of a property deposit as a preliminary payment made by a prospective buyer to a seller to express their serious intention to purchase a property and to temporarily secure it. It acts as a sign of good faith and provides a period for both parties to finalize the details of the sale and purchase agreement.

Key Characteristics of a Property Deposit:

Smaller Amount: Typically, the deposit amount is a relatively small percentage of the total property price. This can vary depending on the property's value, market conditions, and the agreement between the buyer and seller.

Securing the Property: The primary purpose of the deposit is to take the property off the market for a mutually agreed-upon period. During this time, the seller should refrain from entertaining offers from other potential buyers.
Subject to Agreement: The terms and conditions surrounding the deposit, including its amount, the duration of the holding period, and the circumstances under which it might be refundable or non-refundable, should be clearly documented in a preliminary agreement or a receipt of deposit.
Part of the Purchase Price: If the sale proceeds successfully, the deposit amount is usually credited towards the final purchase price.

Use Case of a Property Deposit:

Let's say Khun A is very interested in a condominium listed for ฿5,000,000 in Bangkok. After viewing the property and expressing their intent to buy, they offer a deposit of ฿50,000 to the seller, Khun B. Khun B accepts this deposit, and they both agree on a 30-day period for Khun A to conduct their due diligence (e.g., legal checks, securing financing) and for both parties to finalize the Sale and Purchase Agreement. During these 30 days, Khun B should not accept any other offers for the condominium. If Khun A proceeds with the purchase, the ฿50,000 will be deducted from the final ฿5,000,000 payment.

What Happens if the Deal Falls Through After a Deposit?

The treatment of the deposit depends on the reasons for the transaction not proceeding and the terms agreed upon in the deposit agreement.

Buyer Defaults: If the buyer decides not to proceed with the purchase for reasons not outlined in the agreement (e.g., simply changes their mind), the deposit is typically non-refundable and serves as compensation to the seller for taking the property off the market.
Seller Defaults: If the seller decides to withdraw from the sale (e.g., finds a better offer), they are usually obligated to return the deposit to the buyer, often with a penalty equivalent to the deposit amount, effectively paying back double.
Mutual Agreement or Unforeseen Circumstances: If both parties mutually agree to terminate the agreement or if unforeseen circumstances arise that are stipulated in the agreement (e.g., the buyer cannot secure financing despite reasonable efforts), the deposit might be refundable to the buyer.

Down Payment (เงินดาวน์ - Ngoen Dao)

The down payment is a larger sum of money paid by the buyer to the seller after the Sale and Purchase Agreement has been signed. It represents a significant portion of the total purchase price and signifies a more firm commitment to the transaction.

Key Characteristics of a Down Payment:

Larger Amount: The down payment is substantially larger than the initial deposit, typically ranging from 10% to 30% (or even more) of the property's purchase price. The exact percentage is usually negotiated between the buyer and seller.
Paid After Agreement: The down payment is made after both parties have formally signed the legally binding Sale and Purchase Agreement, outlining all the terms and conditions of the sale.
Part of the Purchase Price: Like the deposit, the down payment is also credited towards the final purchase price.
Triggers Further Steps: The payment of the down payment often triggers subsequent steps in the transaction, such as the buyer proceeding with their mortgage application and the seller preparing for the property transfer at the Land Department.

Use Case Where No Deposit Led to a Loss for the Initial Buyer:

Imagine Khun C verbally agrees with Khun D to purchase their house for ฿8,000,000. They discuss the price and moving dates, but Khun C does not provide any deposit to formally secure the property. Before they can finalize the Sale and Purchase Agreement, another buyer, Khun E, offers Khun D ฿8,500,000 for the same house, and Khun E immediately pays a significant deposit. Since Khun C had not paid any deposit and there was no legally binding agreement in place, Khun D is within their rights to accept Khun E's offer. Khun C, despite their initial verbal agreement, loses the opportunity to buy the house and may have spent time and resources on preliminary arrangements.

Key Takeaway for Agents:

It is crucial for us, as REMAX Thailand agents, to educate both buyers and sellers about the importance of the property deposit.

For Buyers: Emphasize that a deposit is not just a formality; it's a vital step in securing their desired property and demonstrating their serious intent. Without it, they risk losing out to other potential buyers, even after verbal agreements.
For Sellers: Explain that accepting a deposit provides a level of security and commitment from the buyer. It also sets a clear timeline for the transaction to progress.

Always ensure that the terms and conditions related to both the deposit and the down payment are clearly documented in writing, protecting the interests of both your clients. This includes the amount, payment schedule, holding period (for deposits), and the consequences of either party defaulting.

By understanding and clearly explaining the roles of property deposits and down payments, we can guide our clients effectively, build trust, and facilitate smoother and more secure real estate transactions here in Thailand.