Do Contract Deposit and Down Payment Mean the Same Thing?

The terms ‘contract deposit’ and ‘down payment’ in NYC real estate are often used interchangeably by first-time buyers and new agents, but these terms do not mean the same thing.

While the down payment represents the portion of the purchase price paid in cash, the contract deposit refers to the specific amount of cash which is paid at the time of contract signing.

The customary contract deposit in NYC is typically 10%, although this is technically negotiable.

If the buyer’s total down payment exceeds the contract deposit, the remaining percentage down is paid upon closing.

For example, let’s say you’re putting down a total of 20% and the contract stipulates that a 5% earnest money deposit is to be paid upon contract signing. Since you’ve already paid 5% in the form of the contract deposit, this means you will put down the remaining 15% upon closing.

If you’re making a total down payment of 10% and the stipulated contract deposit is also 10%, this means you don’t have to bring any more down payment funds to the closing. However, you will still need to bring funds to the closing to cover your buyer closing costs.

The amount of the contract deposit can never exceed the size of a buyer’s down payment. If, for example, a buyer is making a total down payment of 5%, the contract deposit cannot exceed 5%.

In New York City, the typical down payment is 20%. This is because the majority of apartments for sale in NYC are co-ops, and co-ops almost always require at least 20% down. It’s not uncommon for stricter co-ops to require an even higher minimum down payment of 25%, 30% or in some cases 50%.

Some New York City condo buildings also have minimum down payment requirements, but it’s somewhat rare.

As a result, there’s most likely no minimum down payment requirement if you’re buying a condo or a house.

However, it’s ultimately up to your lender and the seller as far as what minimum down payment percentage will be allowed.

Keep in mind that a seller is ultimately the one who gets to choose who to sell their property to, and by extension, what minimum contract deposit and percentage down percentages are acceptable. Just because your lender is willing to provide you with 95% financing does not mean a private seller/homeowner is obligated to accept such a low down payment.

Low down payments are particularly rare in NYC due to the consistent strength of the market and sheer number of financially qualified buyers who are hunting for homes.

In a best and final offer scenario, a seller will likely gravitate towards the offer with the highest percentage down (and fewest number of contingencies). By extension, a seller in NYC who receives multiple offers will most likely refuse to accept a contract deposit of less than 10%.

Even if a seller has no other offers, she or he is unlikely to agree to a contract deposit of less than 10% since that is the prevailing custom in NYC.

In conclusion, the down payment represents the portion of the purchase price which is paid in cash. The term contract deposit refers to the specific amount which is paid at the time of contract signing.

If the total down payment exceeds the size of the contract deposit, the remaining balance is payable upon closing. The size of the earnest money contract deposit can never exceed the down payment.