Recently I read an article by Mark Weisleder, a well known Real Estate Lawyer, Author and Speaker. With my banking and real estate background, I have a strong understanding about the importance of a good deposit on an Agreement of Purchase and Sale, but I often find that I need to explain this element to my potential Buyer. I like how Mr. Weisleder addresses legal aspects of real estate deposits in his article and I thought you would find it helpful.
1. According to a real estate contract, when do you HAVE to pay a deposit?
Generally there are two options. The Buyer can either attach a deposit cheque with the offer when it is presented to the Seller, or the Buyer can elect to deliver a deposit cheque to the Listing Brokerage within 24 hours of their offer being accepted by the Seller.
2. Once the offer is accepted by all parties, can the Buyer cancel the deal by not handing in a deposit cheque?
NO. When an offer is accepted by all parties, it is a legally binding contract. If you walk away then the Seller has the right to sell the property again and has the right to sue you for any shortfall and their legal fees.
3. Once the offer is accepted by all parties, but the Buyer is LATE handing in a deposit cheque, what are the consequences?
You should always communicate with your realtor and let them know if you’re going to be late with your deposit cheque. If you are late, the Seller is within his/her right to cancel the deal because you have not met all the time limit requirements. If you really want this house you need to be prepared to hand over a deposit cheque when the deal is first talked about. That way you won’t run the risk of being late and losing the property.
This is often a tough question and there are a few things to keep in mind. Basically, the larger the deposit, the more attractive your offer will look to the Seller. It shows you have the funds to make the purchase and you want the property bad enough to be willing to part with a deposit that is more than fair. However, not everyone has access to large amounts of money. It also depends on where you are buying. Properties in Toronto often have deposit amounts that are up to 5% of the purchase price, which could be $20,000 to $40,ooo! Properties around Barrie are often getting 1% of the purchase price or even lower. It all depends on location, how hot the property is and if you’re a Buyer who is competing with other Buyers, and how much the Buyer is able to set aside.
5. Can the Buyer pay the deposit directly to the Seller?
By having the Listing Brokerage hold the Buyer’s deposit in trust it is adding security to the deal. What if the Seller receives the deposit, but then goes bankrupt before the property closes? Then the Buyer loses his deposit as well as the house! By having the Seller’s Brokerage hold the deposit in a trust account, it is protected by insurance.
6. Does the Buyer get the deposit back if the deal falls through?
As a rule of thumb, YES, the Buyer gets the deposit back. However, there are times when this can get complicated. If the Buyer isn’t comfortable with an issue that comes up in the Home Inspection, or is denied financing and is not able to firm up on the deal, then a Mutual Release is filled out requesting the deposit be returned in full to the Buyer. As long as everyone has been honest and understands what is going on, both parties sign the Mutual Release agreeing that the deposit will be returned in full. There are occasions when the Sellers don’t agree to sign this form and then it becomes a matter for lawyers to work out.
My best advice is to make sure you understand what is involved with the offer on any particular piece of property. Ask your sales representative lots of questions and make sure you are financially prepared to move forward with the purchase. The more prepared you are the better the experience will be!
Feel free to contact myself, Christie Bond, at 705-220-1152 or John Weber at 705-727-6111 if you have any questions about real estate deposits or any other real estate issue. You can also reach us by email at firstname.lastname@example.org or email@example.com