6 Things to know about real estate deposits
Here are some common questions I receive about real estate deposits
1. When must a deposit be paid under the standard Ontario real estate contract?
In Ontario, the standard real estate contract gives the buyer two choices; you can pay the deposit immediately when you present your offer to the seller, or you can agree to pay it within twenty four hours after the seller accepts it. Most buyers prefer the second option. If you are in a bidding war, you will be encouraged to come up with the deposit immediately, to show additional good faith to the seller.
2. Can the buyer just cancel the deal by refusing to pay the deposit after the deal is accepted?
The answer is no. Once the deal is accepted, you can't change your mind. If you do, the seller can sell the property again and if they obtain less money than you were going to pay them, the seller can sue you for the difference, plus legal fees.
3. What happens if the deposit is paid late?
If you are late with the deposit, the seller has the right to cancel the deal. This is because all time limits matter in real estate contract sand if you are late, even by a few minutes, the seller can try and cancel. I have seen this happen many times, especially when the seller knows that there is another buyer out there who will pay more money. If you need more time to come up with your deposit, say so in your offer.
4. How much should a buyer pay as a deposit so the seller will feel secure that the deal will close?
This is a tough question, and will largely depend on where your home is located. In the City of Toronto, deposits are now usually up to 5 per cent of the sale price. In Brampton, it is closer to 2 per cent. In some areas of Ontario, deposits can be as little as a few hundred dollars.
5. Why can't the deposit be paid to the seller instead of the seller's agent?
If the seller goes bankrupt or disappears with the deposit, the buyer is not protected. When the deposit is held by the real estate brokerage, it is in trust and is also protected by insurance so even if the brokerage goes bankrupt, the buyer can get their money back.
6. If the buyer is not satisfied with their home inspection, how can a seller refuse to release the deposit back to the buyer?
This happens more than you think. A deposit cannot be released unless both the buyer and seller agree. If a seller believes that the buyer did not act in good faith in trying to satisfy their condition, whether it is a home inspection, financing or a condominium status certificate review, they can refuse to release the deposit. This means it stays in the broker's trust account until a judge decides who gets it, which can take years. As a precaution, buyers should consider making two deposits in their offer, a small one of say one per cent when the offer is accepted, and a second larger deposit once the condition is satisfied.
Be serious and understand the rules about deposits before you sign any real estate contract. It is expensive to change your mind later.
--- Credits for this article go to MARK WEISLEDER Real Estate
Lawyer, Author, Speaker