If you’re a first-time buyer, you may have questions about deposits. Let’s go over them and get you in the know!
What is a real estate deposit?
The Buyer pays a real estate deposit upon an accepted Agreement of Purchase and Sale (offer) for a property. The deposit is to provide security to the Seller in the act of good faith that the Buyer has a financial stake in the agreement.
When do I pay the deposit?
There are 3 options:
Herewith – the deposit is submitted with the Agreement of Purchase and Sale. If the offer is accepted by the seller(s), the cheque is deposited. If not, you can simply return to your bank and redeposit the funds back to your account.
Upon Acceptance – the deposit is due within 24 hours of the offer being accepted
As otherwise described in this Agreement – sometimes buyers pay several deposits. For example: a portion upon acceptance, and a portion after conditions are fulfilled or waived. These terms will be described in the Schedule A of the Agreement of Purchase and Sale.
Generally in the Kingston area the deposit is due Upon Acceptance – i.e. within 24 hours of your offer being accepted by the seller.
How can I pay my deposit?
You can pay via bank draft, money order, certified cheque, wire transfer, or sometimes several e-transfers (limit is often $3000 on e-transfers and you can expect the deposit to be more than this). The specific instructions will be provided by the listing (seller’s) brokerage.
How much is the deposit?
This is often described in the listing, which your REALTOR® can access. In the Kingston area, up until recently, a $5000 deposit was the norm. In the past year we have seen more buyers in breach of contract (unable or unwilling to complete a property purchase) so you can expect this to be closer to 5% of the purchase price. The higher the deposit, the better the sign of good faith in the seller’s eyes.
What happens I’m late paying the deposit?
The seller has the right to cancel the deal, and you are in breach of the agreement. Time limits are extremely important in real estate and if you are late, even by a few minutes, the seller can try to cancel. When you seriously start searching for a property, it’s important to have your deposit funds readily available.
Misconception: There is a misconception that the agreement is not firm and binding until the deposit is paid, but this is not true. If you do not deliver the deposit, you are in breach of agreement, and a seller is entitled to seek damages.
Where does my deposit go?
Deposits are generally held in the listing (seller) brokerage’s Real Estate Trust Account. The funds remain in trust until closing. If interest is payable, this must be stated in the agreement. Deposits held in Real Estate Trust Accounts are insured up to $100,000.
Is my deposit refundable?
When there are conditions in an Agreement of Purchase and Sale that are not satisfied, a real estate deposit is returned to the buyer. An example of this is if you’ve made an offer with a Financing Condition and the bank refuses your application during the conditional period. If you are unable to proceed with the purchase because the condition cannot be met, the buyer and seller both sign a Mutual Release during the conditional period. It’s important to discuss conditions in your offer with your REALTOR®.
What happens to my deposit at closing?
Your deposit is applied to the property’s purchase price at closing.
To find out what other costs are involved at closing, check out our Closing Costs blog.
Please note: this blog post is not intended to replace advice of a solicitor.