The purpose of the deposit in a real estate transaction is meant to serve to purposes; To act as consideration for the deal and to bind the buyer to the contract. . In Brampton, it is closer to 2 per cent. In some areas of Ontario, deposits can be as little as a few hundred dollars. The main purpose of the deposit, is to protect the seller and ensure that the buyer is bound and cannot walk away at any time. The contract that the buyer signed is enforceable, and that buyer could be sued successfully, but with no deposit being held.
- Payment: When is the ideal time to pay the real estate deposit has been a myth for many. Also how much is too much? Deposits are now usually up to 5% of the sale price.However 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. However if there is a bidding war; often to display good faith to the seller.
- Refused Deposit Payment: Sometimes clients may refuse to pay the deposit and cancel the deal because you decide to change your mind; although this is not acceptable. But this happens after all and the seller decides to 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.
- Late Payment: If a deposit is paid late, the seller has the right to cancel the deal. Time is valuable when making deals and to make this clear to clients; sometimes the seller may try to cancel. This often happens especially there is another buyer who is making a better deal. So make sure to communicate with the seller while making the offer.
- Receiver: The deposit is received by the real estate brokerage, to protect the buyer. 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.
- Deposit Refund: 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.