Is a deposit on an aircraft purchase usually fully refundable for any reason?

[TravelVeteran]

I am helping a friend sell an airplane.  The contract template I found has standard language making the deposit non-refundable unless something serious or hidden is found in a pre buy affecting airworthiness. 

The buyer wants to change the language to make it so he can get his deposit back for any reason or no reason at all. 

What's the best way to proceed to ensure we are not wasting our time with this buyer?

 

[PeteMc]

That's fine for the Buyer to want this, but your friend should say NO and stick with the standard wording.

The point is so that a "looker" that MIGHT be able to come up with the cash doesn't pull the plane off the market while they're trying to pull things together.  Then ultimately they can't and the sale falls through.  During the time the "looker" is trying to get the cash, your friend could loose a couple of other real buyers.  If someone is serious about the plane, they will have no problem putting down the money.

And as you said, if a major problem is found, then the Buyer will get their money back. 

Edited December 15, 2021 by PeteMc

[ArtVandelay]

You’re effectively taking the plane off the market when you get the security deposit, possibly losing money from another buyer while dealing with current one, that’s why the deposit is necessary.
I would tell the buyer to pound sand, he might just be a tire kicker.

[Iceman10c]

All of my contracts have a refundable deposit contigent on a pre-buy inspection.

Sent from my SM-N986U using Tapatalk

[TheAv8r]

7 minutes ago, TravelVeteran said:

I am helping a friend sell an airplane.  The contract template I found has standard language making the deposit non-refundable unless something serious or hidden is found in a pre buy affecting airworthiness. 

The buyer wants to change the language to make it so he can get his deposit back for any reason or no reason at all. 

What's the best way to proceed to ensure we are not wasting our time with this buyer?

 

My $0.02 - the deposit is there to protect both parties. 

It protects the Seller by providing a good faith that you're going to purchase the airplane, barring any crazy issues, so that they aren't wasting their time or when they are telling other interested Buyers it's under contract. It shows you're serious about buying the airplane and aren't going to back out randomly.

It protects the Buyer by ensuring that they aren't going to go sell the plane out from under you while you're working on arranging a prebuy.

Of the 3 airplanes I've purchased, my contracts were always worded that if I as the Buyer backed out with no cause, the Seller keeps the deposit. If the Seller backs out for no cause, they refund me the deposit and the cost of the prebuy if it has already been done. If issues arose during the prebuy and we can't reach an agreement, then the deposit is refunded to me and the cost of the prebuy is usually split, depending on the disagreement (if they're not willing to work with me at all on airworthiness items, then they owe me the cost of the prebuy). Most contracts I write says the Seller will either fix any airworthiness discrepancies discovered during the prebuy or negotiate the cost accordingly, otherwise they will pay for the prebuy + give me the deposit back. This helps protect me that I'm not going to find serious issues on a plane I want to buy and the Seller say ok, I'll sell to someone else and I'm out the $1000+ for a prebuy. It also protects the Seller by giving them protection that if issues are found, it's still their plane, they can decide if they want to fix it and sell to me, or negotiate the price - plus it puts the emphasis on airworthiness items, not just minor squawks. If you need new brake pads, nbd, if the engine is toast, okay we have an issue.

I would politely tell the Buyer that the deposit can be returned only in x cases. The market is on fire right now, if he doesn't like those terms, there are other Buyers behind him.

[exM20K]

A deposit is earnest money - It shows the seller that the buyer is serious.

All of the purchase contracts I executed when I sold airplanes had a deposit that was refundable under specified conditions.  Specifically, airworthiness or not squawks which the buyer and seller could not agree on how to cure were deal breakers that could result in the return of a deposit.  In my experience, there was never a case of an unserious buyer who had sent $20-$50,000 in deposit money to escrow trying to break a deal over a rusty screw or some other trivial squawk.

By putting language in the agreement about squawks that seller and buyer cannot agree on how to cure, both parties are protected.  Imagine a case where you put a deposit on a plane and find several cylinders are worn, though this was not disclosed in the description of the plane.  Should not they buyer get back his money if the seller refuses to fix the engine?

Also, I strongly suggest using an escrow service such as AIC, AOPA, etc.  I would never send money to a seller as a deposit.  The escrow companies will, under most circumstances, refund deposits.

-dan

[jaylw314]

3 minutes ago, exM20K said:

A deposit is earnest money - It shows the seller that the buyer is serious.

All of the purchase contracts I executed when I sold airplanes had a deposit that was refundable under specified conditions.  Specifically, airworthiness or not squawks which the buyer and seller could not agree on how to cure were deal breakers that could result in the return of a deposit.  In my experience, there was never a case of an unserious buyer who had sent $20-$50,000 in deposit money to escrow trying to break a deal over a rusty screw or some other trivial squawk.

By putting language in the agreement about squawks that seller and buyer cannot agree on how to cure, both parties are protected.  Imagine a case where you put a deposit on a plane and find several cylinders are worn, though this was not disclosed in the description of the plane.  Should not they buyer get back his money if the seller refuses to fix the engine?

Also, I strongly suggest using an escrow service such as AIC, AOPA, etc.  I would never send money to a seller as a deposit.  The escrow companies will, under most circumstances, refund deposits.

-dan

You can (and certainly should, in this market), write in a specific deposit refundable only under specific conditions (earnest money).  If you want to go by the housing market, this should be somewhere between 1-3% of the value, and is usually only refundable for financial conditions (the most common being inability to secure financing).  This is completely distinct and separate from the deposit the buyer will give the bank to secure financing, which might be 15-25% of the financed amount.

As a seller, you might also want to encourage buyer to get a pre-purchase inspection.  While this may open you up to headaches and renegotiating stuff based on their findings, it might mitigate some of the risk you face for non-disclosure.  More importantly, it is another show of interest on the part of the buyer--you can be more confident they're not just kicking tires if they're willing to spend $1000 on an inspection, even if that money is not going to you.

[midlifeflyer]

The general rule is, unless a contract provides otherwise, a deposit is in exchange for taking something off the market and is non refundable. So read the contract and negotiate terms for refundability if they are not already there. Peoples Court 101.

it's pretty common for aviation purchase contracts to have deposit refund clauses roughly equivalent to those in real estate contracts.

[larryb]

I purchased my Encore through a broker and this is what the contract stated:

 

Purchase inspection. Buyer and seller agree that Buyer may have a pre-purchase
inspection completed at Buyers cost prior to delivery. In addition, Buyer shall also
be entitled to an acceptance flight confirming that the Aircraft and its equipment
is functioning properly. If items are discovered in these inspections that cannot be
agreed upon by Buyer and Seller, the Buyers deposit shall be returned.

[Aerodon]

The last plane I purchased I secured with a $1000 deposit after my initial inspection and I had about 3 weeks to do a pre-purchase and close.  The one before was a $5000 deposit with the same 2 or 3 weeks to do a PPI and close.

You have too get your head around the rest of the contract and disclosure to that point.  If the seller has already told you one radio isn't working, compressions are low, prop is due for an inspection, and the plane is priced to reflect that, then don't expect much of a discussion.  

But if you find AD's that are not done, major corrosion etc. that make the plane not-airworthy, and the seller won't fix or deduct, then you should be able to get your money back.

Aerodon

 

 

 

 

 

 

[Guest]

In addition to the refunds listed above, the deposit should also be large enough to cover airplane relocation costs should the deal go south.

Clarence