Buyers and sellers should both understand these common questions about deposits when buying/selling a house.
When must a deposit be paid?
In Ontario, you can either pay the deposit immediately when you make an offer, or you can agree to pay it within 24 hours after the seller accepts it. Most buyers prefer the latter option. However in a bidding war, you will be encouraged to come up with the deposit immediately, to show good faith to the seller.
Can the buyer get out of a deal by refusing to pay the deposit?
No. Once the deal is accepted, you can’t change your mind. If you do, the seller can sell the property again and if he gets less money than you were going to pay the seller can sue you for the difference, plus legal fees.
What happens if the deposit is paid late?
The seller has the right to cancel the deal. This is because all time limits matter in a real estate contract and if you are late, even by a few minutes, the seller can try and cancel. 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.
How much should a buyer pay as a deposit?
In Toronto, deposits are 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.
Why does the deposit go to the seller’s real estate agent and not the seller?
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.
If the buyer is unhappy with their home inspection, can the seller refuse to return the deposit?
A deposit cannot be released unless both the buyer and seller agree. If a seller believes 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.
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