There is a brokerage in RI that has repeatedly requested a minimum 5% deposit when submitting an offer to them. While it is understandable that the brokerage desires to cover their commission as much as possible, and perhaps, stretching way over backwards to come to this, they might want to show their sellers that the buyer is “serious” — yet, I must argue that by definition, this is a discriminatory practice, which excludes a great many buyers from submitting offers on this brokerage’s listings.

PLEASE BE AWARE THAT THIS PRACTICE IS UNETHICAL, AND COULD BE CONSTRUED AS ILLEGAL IN CERTAIN CIRCUMSTANCES

Here are some of the reasons I say it is a discriminatory practice, and should be viewed not only as unethical, but as a breach of the Fair Housing Laws.

1) For a buyer who is seeking better than 95% financing, this practice would require that they submit a 5% deposit for the offer to be presented. This limits their financing options, and makes requirements of the buyer that are unreasonable. By not presenting this sort of offer to the seller, the buyer seeking more than 95% financing is by default discriminated against. Also, the seller is not being shown all offers, so the fiduciary responsibility of the agent is broken. See our remarks on Real Estate Agent Fiduciary Responsibilities

2) Many first time buyers do not have enough cash on hand to pay this deposit, and also cover closing costs and other expenses that they must cover, including things like moving expenses, insurance, inspections, appraisals, etc. They are qualified to buy, and can get a mortgage for the amount needed, but cannot cover all these out of pocket expenses and still pay the 5%. Thus, this sort of buyer is also discriminated against by this practice of requiring 5% to be paid to submit an offer. And again, the seller is then not being presented with all valid offers. Thus, discrimination exists against many first time buyers with this practice, and again, fiduciary responsibility is not being met to the seller.

3) By limiting the number of valid offers presented to the seller by prescreening them without consideration for the ability to purchase, but only with consideration given to the amount of the deposit, many offers that are from bank-qualified buyers, which may even be of higher amounts than other offers, the listing agency is not living up to their responsibility to present all valid offers to the seller. If it is stated that the offer is not considered valid due to the lower % deposit, that is nonsense, meaningless, and blatant discrimination against otherwise qualified buyers. This practice only helps the listing brokerage, as it assures their commissions are paid rapidly to the agents, since they have most of the commission, if not all of it, in the bank before the closing. Self serving practices are not ethical when they discriminate against certain groups of buyers.

These are just three reasons why this practice is discriminatory, and also why it is unethical in supporting the role of fiduciary to the seller. I can come up with many more reasons.

I am aware that many condo associations have restrictions in terms of deposit amounts, or in terms of mortgages, but these are associations which often also have votes on who can purchase a member property. This is very different than unassociated single family homes.

My point is this: it is an unethical and discriminatory practice to require any percentage deposit as a minimum in order to present an offer to a seller.

If you have been “required” to submit a 5% deposit in order to purchase a property, and want respresentation to assist you in purchasing a property, call us today 401-293-0631 or contact us here