The topic today, the CIDF form. Actually, originally we have this clause right in the CIDF form. But the version that you’re having right now, it doesn’t have this clause, but we will add it back to the CIDF form soon.
So what this thought is about is about in case that this is just in case of sale, in case the buyer, let’s say when we list the unit right to the website and then there is some buyer come along and want to buy that unit. However, unfortunately the buyer, they change their mind or they decide not to proceed further. That means they want to cancel the contract, right? What is going to happen is the owner will keep the deposit.
That deposit will be non refundable in case the buyer terminates the contract. So in this clause it’s talking about what to do with that non refundable money, right? Because now the owner will keep that deposit to himself. So this clause that we are going to add to the CIDF form, it talks about that, how are we going to do with that forfeited deposit? So it say that in case that the buyer withdraw from purchasing the property, you see the blue one and after the agreement is signed, right, sorry, when the reservation agreement is signed and the deposit or the reservation fee, blah blah blah has been paid, then that deposit will be for fated.
And it say that in that case, our administration and marketing and introduction fee will be payable equivalent to total commission value as stipulated in the CIDF. But there is one more clause that say that equivalent to total commission value as stipulated in CIDF, but not more than 50% of the deposit of the phosphated amount. So why we have this clause and it’s not just only in the CIDF form that have this clause.
Also in our reservation agreement, also have this clause as well. In case that the deal is terminated by the buyer or the seller, what’s going to happen is say clearly that in case that it terminates by the buyer, look into the clause 5.3. If the buyer terminated, then the deposit shall be forfeited, right? The deposit will become non refundable.
Then it say that for fated amount will be split between owner and agent, right? And if it is normally in normal practice, it will be shared 50 50 between owner and the agents. But there is some case that it depend on an agreement between agents and the owner. So that depends, but the normal practice is 50 50.
And how about in Kate that the seller changed their mind? Let’s dive into this storytelling slide. So think about when we have a deal, right? The buyer paid the deposit to the owner. This case, just an example, I say one hundred K and this is facilitated by agents, right? Then later on, the buyer changed his mind and canceled the contract.
What happens that deposit of 100K will be for the owner keep it. And just to let you know, the owner still has the house, the owner have nothing to lose, he just gets one hundred k to his pocket. And this money that we forfeited is actually from the agent introduction and operation and administration.
So the agent say okay, good, the deal didn’t go through, but I already work. You already have the expense about traveling to meet them. You already have the expense when you call them.
There are already a lot of department in Fazwa Stewart, both It team marketing teams and on and on and on, right? There is the cost there. Even though eventually the deal didn’t go through and the owner still owned the house, he still have his house, right? So that means in normal practice, like when I was an agent, I always communicate this scenario to the owner prior to I get the listing from the owner and the owner understand and see that this makes sense. But this conversation should happen before listing or before the negotiation, before even you take the clients to willing.
So in normal practice, thus fated amount will be splitted between owner and the agent 50 50. And this 50% cover the owner opportunities, time and other expenses. Whereas the agents have more costs associated in facilitating this transaction opportunity cost.
Rather than we working with another deal or working with another buyer, we lost our opportunity, we have the marketing cost, we have the travel or phone bills and et cetera, right? So that 50% should cover our expense. But in case that after the buyer pay deposit and then later on the owner change his mind, maybe he gets a better offer from other buyer, maybe he just feel that he want to keep it and he may be sell it to another buyer who can offer him better offer. He may wait for another couple of years and rent it out by now and don’t have to sell at his loss, right? So he can change his mind.
What happened is that deposit will be refunded to the buyer and again, this is by the facilitation of the agent. And if the owner can just refund the deposit, then it’s so easy for him to walk away from the deal. Because if you’re like oh, I have nothing to lose, I still have my house, I can just refund the money of the buyer.
Remember, this 100K is not the owner money, it is the buyer money. And of course the buyer should get this amount back, right? Because he is not the one who breached the contract, it’s the owner who changed his mind. So this buyer just gets his money back.
So this case, the owner will feel like well, I have nothing to lose, I just refund his money back. Fine. So that’s why in our reservation agreements, there is this clause saying that hey, honor, if you change your mind, if you cancel the contract and you are the one who breached the contract, besides that, you need to refund the deposit also, you also need to pay the penalty fee too.
Because remember, if the buyer changed his mind, he lose his 100K. So shame. If you shame your mind, you also need to lose.
Your owner will say like oh, this is not fair. This is my properties. I have the right to decide whether or not I want to sell, right? Why I need to pay? And then I normally explain the owner this way hey, the owner, think about it.
If you say that you don’t want to pay for any fee, you don’t want to pay this 100K, think about it. If in case the buyer also changed his mind and he tell us that no, it is my decision whether or not I want to buy, I will not lose that deposit. So if I change my mind not to buy further, can I get that deposit back? Are you willing to give that 100K back to him when he changed his mind? Then the owner will realize, well, it’s true, right? Because if he changed his mind, he needs to pay for it with his 100K will become mine.
So it’s the same thing. If the owner sharing his mind, he needs to lose that 100K. So that’s why in our reservation agreement say that, hey, buyer and owner, no matter who cancel or breach the contract, both of you will lose one hundred k.
That is where that clause coming from. So in that case, the owner need to pay an extra one hundred K to the buyer, right? To cover the buyer opportunity, cost, time and expenses. And again, that penalty fee that the buyer gets should be split 50 50 between buyer and the agent.
Because again, that’s money coming from the agent introduction and operation. So we have our causes and expenses as well. So that’s why in normal practice, I always make it clear since the beginning, both of you, if you change your mind, this is the penalty, right? Because this is not just a joke.
I’m not here to work for free. I will not get paid until the transaction is completed. So I would do my best to make sure that this transaction is completed.
This clause is not there to penalize anyone, but to protect both party interest equally. So I hope now everybody understand the logic or the reason why we have those clauses to protect buyer and the seller both in the CIDF form and the reservation agreement. So if you have any question, please reach out to me, boomer, Christian or your manager, we are happy to explain you and run you through those clauses.