The 411 On Real Estate Deposits

By Aleksandra Oleksak, The Real Estate Chick

I know this may not be the most interesting topic to talk about, but it’s an important one. You would be surprised how many buyers are shocked when I tell them; they have to have cold, hard cash available for their deposit when buying a home. This does not mean your RRSP’s as that money is only released on closing day for your down payment, I’m talking about easily, accessible cash. So here is the 411 on real estate deposits and how they work!

When & Why Is A Deposit Given?

When you submit an offer to purchase, normally a deposit amount is written on the agreement of purchase and sale. There is no standard deposit amount, but the larger your deposit the more serious the buyer. Usually it must be given to the listing brokerage 24 hours after both buyer and seller accept the offer; therefore you must have the cash available. A deposit is given to demonstrate a serious intent to buy the property. It is a certified cheque or bank draft and provides the seller with some assurance that you will go through with the sale. If your offer is conditional and you are unable to fulfill the conditions, your deposit is returned, granted the clause is worded as such.

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Where Does It Go?

Once the deposit is received by the listing brokerage, it is placed in the brokerage’s interest bearing trust account until closing. It is not given to the seller to deposit in their bank account or the listing agents bank account. So if you’re a seller and counting on the deposit money to be used for your next home purchase, think again, the money does not get released until the closing day. As a buyer you do have an option to request the interest earned on your deposit, but these trust accounts have such low rates, that most likely you’ll make a few bucks which you would have to declare on your taxes. Is it worth it, I think not!

How Is It Used?

The deposit a buyer gives is credited towards their down payment. Although you have to have the cash available to give a deposit with the offer, the rest of your down payment is not needed until the closing day. Your lawyer will calculate the remainder of your down payment. They will take the total down payment needed minus the deposit and add the remaining balance to your closing costs.

With the Toronto real estate market being so competitive, a lot of serious buyers go as far as bringing their certified deposit cheque on offer night. If your offer gets accepted then you hand over the deposit on the spot and if not, you sadly have to go back to your bank and re-deposit the money. The important thing to remember before you start looking for a home is that you need the money readily available; this doesn’t mean your whole down payment, but definitely part of it. If not, you’ll be left scrambling last minute to come up with the deposit and potentially lose the home you just bought.

Aleksandra Oleksak is Her City Lifestyle’s “Real Estate Chick,” and a Toronto real estate professional with Sage Real Estate. As @RealtyQueenTO, her real estate blog has been named one of the top 50 real estate blogs in Canada.



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