Home Deposits 101
Monday, May 1, 2023
Almost everyone has heard of a down payment, but have you heard of a deposit? Many people confuse the two, but they're very different! Here's everything you need to know about home deposits.
What Is A Home Deposit?
Purchasing a home requires a deposit - it's a legal signal to the seller that you are serious. However, unlike the security deposit you would put down for last month's rent on a rental property, a deposit on a property you are purchasing is an amount of money you don't get back. Instead, it goes toward your down payment.
Who Do I Pay The Deposit To?
Your deposit doesn't immediately go to the seller. If you are the successful bidder on the property, your deposit will be held in trust by the brokerage of the seller's agent. Deposits are usually made in the form of certified cheques, bank drafts or money orders. Nowadays, most real estate brokerages give the option to use online bill payments and wire transfers!
When the sale closes, the deposit goes towards the total purchase price of the property and becomes part of your down payment. However, if a sale doesn't go through, it is possible to lose your deposit.
In the event of a serious dispute with the seller, the brokerage of the seller's agent can hold onto the deposit and keep it as damages. Alternatively, if you choose to back out without having placed prior conditions on your offer, not only will you likely lose your deposit, you could also face a potential lawsuit for any damages suffered by the seller. Rest assured, they will not take your money and run, and they cannot do this easily or lightly.
How Much Is A Deposit?
Deposits can vary but usually are at least 5% of the purchase price of the property. This will signal to the seller that not only are you serious, but that your finances are in order. The deposit amount will generally be guided by the purchase price as well as how quickly you will be closing the transaction. The bright side to the deposit is that it will accumulate interest, provided it's written into the Agreement of Purchase and Sale.
Has this cleared things up for you on home deposits? Would you like to know more? Please reach out to us here if you have any questions or call is at 905-426-7484. We'd love to answer any and all of your home deposit questions!
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