The offer amount in a purchase agreement is obviously one of the key components that sellers will look at when deciding whether or not to negotiate further or accept the offer as is. However, there are plenty of other components in a real estate contract that warrant serious consideration, including the deposit amount.
When buying real estate, buyers must put forth a deposit cheque that goes towards the down payment and therefore the purchase price of the home. Here are some facts about deposit cheques to help you become familiar with this crucial part of the real estate transaction process.
They Need to be Paid Within 24 Hours of Offer Acceptance
In Ontario, buyers have 24 hours to provide the deposit cheque after an offer has been accepted by both the buyer and seller. The cheque needs to be in the form of a money order or certified cheque when submitted. The sooner the cheque is provided, the better, as this shows the seller that the buyer is fully committed to completing the transaction.
In a hot market, as is the case in Toronto, buyers are encouraged to come prepared with a deposit cheque in hand at the negotiating table. This is especially true in the case of a bidding war where the seller is entertaining multiple offers from various interested buyers. Having a certified cheque in hand will demonstrate to the seller that the buyer is very serious about the offer. It also crosses one more task off the list of having to wait for the deposit cheque to come in.
If the deposit is paid late, the seller has the right to cancel the deal. Real estate is time sensitive. Every moment counts, and if buyers are late making payment for the deposit, the seller may very well negate the deal and move on to another willing and qualified buyer who is interested in purchasing the home. If a buyer needs more time to come up with the deposit amount for whatever reason, it should be stipulated in the offer.
Buyers Can’t Get Out of Deals by Refusing to Pay the Deposit
After the purchase agreement has been accepted by the buyer and seller, the contact is now a binding one. Both parties are now bound to the terms that are outlined in the agreement. If the deposit cheque is not submitted by the buyer, this will be considered a breach of contract. The only way that buyers can get out of real estate deals is if the clauses inserted into the agreement are unable to be met.
Of course, if no deposit is submitted, the seller will obviously want to move on to a more qualified buyer. If the seller gets less money compared to what the initial buyer agreed to pay, the seller may go so far as to sue the buyer for the difference, plus any associated legal fees.
The Deposit Amount Varies, But is Usually Up to 5% in Toronto
Depending on where the real estate transaction is taking place, the recommended deposit amount will vary. Usually, hotter markets with more expensive properties will demand higher deposit amounts. For instance, in Toronto, it’s customary to offer as much as 5% of the purchase price in the form of a deposit. In other parts of the province, the amount is usually lower. For instance, in suburbs outside of Toronto, the average deposit amount is somewhere around the 2% mark, and in rural areas, the amount can be as little as a few hundred dollars.
Of course, the deposit amount is one of the many items in a purchase agreement that can be negotiated. If the seller doesn’t believe the deposit amount offered by the buyer is enough to showcase the buyer’s commitment to go through with the transaction, the seller can counter offer asking for a higher deposit amount. As far as a seller is concerned, a high deposit amount is a sign of good faith that the buyer will complete the transaction according to the stipulations outlined in the agreement.
The Cheque Goes to the Seller’s Agent, Not the Seller
For the most part, the deposit cheque is submitted to the seller’s broker and is held in trust with the brokerage. Deposit cheques are never handed over to the seller to keep until the property closes for obvious reasons. The seller can easily make off with the cheque or go bankrupt during the closing process, leaving the buyer unprotected. When the deposit money is held by the brokerage, on the other hand, it is protected by insurance, which means the buyer will get their money back even if the brokerage goes belly up.
Deposits Are Typically Given Back to the Buyer if Conditions Are Not Met
If the buyer is unable to fulfill the conditions of the purchase agreement, the deal is null and void and the buyer is typically given the deposit back. For instance, if the buyer is unable to secure a mortgage or is unsatisfied with the results of the home inspection, they can walk away from the deal within a time period stated within the agreement and have their deposit cheque returned. However, if the buyer does not act in good faith when trying to satisfy the condition, the seller could refuse to give the deposit back. In these rare circumstances, the deposit will remain with the brokerage until a court judge determines who is entitled to keep the deposit.
Understanding the rules of deposit cheques prior to engaging in a real estate deal is important. Without sound knowledge of how the deposit cheque works in a real estate transaction, buyers and sellers could find themselves in a nasty battle.
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