26 May 2014
Otherwise, the seller can sell the property once again and if he gets less money than you wanted to pay, he can sue you for this difference (plus legal fees).
What if you pay the deposit too late?
In this case the seller can cancel the deal. It’s important to understand that time pays huge role in real estate contracts. So if you’re late with the deposit even by a few minutes, the seller can cancel it. In fact, it happens quite often, especially, if there’s another buyer on the horizon who’s ready to pay more. If you need more time to provide a deposit, please, mention it in your offer.
How much should you pay as a deposit?
It all depends on the location. For example, in Toronto it may be 5% of the sale price, in Brampton – about 2%. Meanwhile, in some areas of Ontario deposits can be a few hundred dollars.
Why should your deposit go to the seller’s agent and not the seller?
It’s done for the sake of buyers’ protection. If the seller goes bankrupt or leaves with the deposit, the buyer is not protected. But when the deposit is held by the real estate brokerage, it’s secured. Moreover, it’s insured, so even if the agent goes bankrupt, you’ll still get the money back.
Can the seller refuse to return your deposit, if you’re not satisfied with the home inspection?
Actually, it happens really often. Nevertheless, a deposit can be released only when both the buyer and seller agree. If, in seller’s opinion, the buyer did not act right during a home inspection, financing or a condominium status certificate review, they can refuse to give you back your deposit. As a result, the deposit remains at the agent’s account until the judge decides who owns it. In order to protect yourself, you may provide two deposits: a little one (1%) when the offer is accepted, and a larger second deposit – when all conditions are satisfied.
It’s extremely important to understand all the rules concerning deposits before you sign any real estate contract. Otherwise, it will cost your too much to change your mind.
From the mortgage lender prospective, most of the time, deposit is a part of a downpayment, so you have to prove source of the money used for the deposit. Banks require 30 to 90 days bank statements to confirm money ownership. If those funds were gifted, we need gift letter and confirmation that money were deposited to your account, however some banks require source of gift confirmation i.e. Giftor (immediate family member) bank account statement.
We strongly advise that all clients consult with their mortgage broker or bank before going into any real estate deal for pre-qualification and proper advice on funds used for deposit and downpayment.