Updated: Nov 12, 2020
If you are planning to buy a property then most often your real estate agent will suggest that you pay the deposit amount right at the time when an offer is made. Let us look at the reasons for the same. In addition, we will answer some other important questions that buyers have related to deposit that they are required to make.
When the deposit is to be made?
In many provinces, the contract lets buyers select one of the two options; either pay the deposit money immediately when an offer is made or within 24 hours after your offer is selected by the seller.
It is worth mentioning here that if there are several buyers vying for a particular property then it is better to pay the deposit money immediately, which will show your good faith and commitment to actually purchase the home.
What can happen when buyer pays the deposit late?
If buyer is late on making the deposit then seller is allowed to cancel the property deal. This happens in situations where there are other people who are willing to pay more for the property. If you think it is going to take more time to get required funds for making the deposit then it will be better to mention the same in the offer.
How much deposit is to be paid?
The amount of deposit will be 5% or more of the total sales price.
Why the deposit amount is held by the real estate agent?
The buyer will have no protection in case seller disappears or goes bankrupt. But, when real estate brokerage holds the deposit, it remains protected by insurance and is in a trust. In such situation even when the brokerage files for bankruptcy, the buyer will be getting his or her money back.
Is it possible that the seller refuses to release the deposit?
It certainly happens and both the seller and the buyer need to agree on the release of deposit amount. In case seller thinks that buyer is not acting in good faith with respect to home inspection, review of certificate related to condominium status, or financing then the seller will not release buyer’s deposit.
If this happens then the deposit amount will remain in the trust account and judge will be deciding who will be getting it. These cases can take years to resolve. Thus, as a precautionary measure what buyers can do is make two deposits, a smaller deposit of about 2% when seller accepts the offer, and a larger deposit when all the conditions are satisfied.
Are down payments and deposits same?
Deposits are payments made in the initial stages of the purchase transaction. The aim of making a deposit is to make it legally binding for the buyer and make sure buyer is committed to buying the home.
On the other hand, buyer pays the down payment apart from the mortgage amount during closing of home purchase transaction. The deposit amount will be part of the total down payment you will be making.