Deposits and How They Work...

Recently I met with an older client who’s “friend” is in the business. She wanted to get a second option on a buy transaction because some of the things her friend was saying sounded off to her. 

 
One of the statements her friend made was that after she put in the offer on the new home (priced at about $900,000) and it was accepted that she would have to give $100,000 in deposit money within 24 hours to the listing brokerage….
 
Let's break this down a little before I tell you that's completely insane and I would like to find this agent and give her a good shake……
 
A) Yes when an offer is accepted you do give a minimal (sometimes 5%) down in the name of the listing brokerage as a “good will” gesture as some people call it. These monies are then held in a trust account with the listing brokerage by the Broker of Record. In turn, when you put your mortgage deposit down with the bank on closing that money gets deducted from what you owe.
 
Example: You have $50,000 down payment for the bank, You pay $10,000 upon acceptance of the offer. Come closing you only owe the bank $40,000. 
 
B) The money you put down upon acceptance is what the listing Brokerage uses to pay commissions from. If you have a deposit of $20,000 and commission is less, then a cheque in the overage amount will be written to the seller upon closing. If more than $20,000 is needed to pay commissions than the Sellers lawyer will issue a cheque to the listing brokerage to cover the remainder of the costs.
 
C) Most people don’t have $50,000 liquid asset let alone $100,000!
 
D) If someone tells you to put an insane amount of money down upon acceptance of the offer, take a step back, analyze the situation, then call another agent for an opinion. Better yet….Call Me!
 
My rule of thumb when it comes to acceptance deposits is this…
 
Home value               Deposit
up to $400,000           $5,000 - $15,000
$400K - $600K           $10,000 - $30,000
$600K - 1MIL               $35,000 - $45,000
 
Every agent is different in their requests as well as Seller.
 
Regardless of the situation. Your home is one of the biggest assets you will ever have. If your gut is telling you something is fishy….Stop!  Ask questions, then ask some more. 

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Kimberly Clark

Kimberly Clark

Broker
CENTURY 21 Leading Edge Realty Inc., Brokerage*
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