Let's Talk Deposits When Purchasing a Property

(May 26, 2014 , posted in Buying a Home)

I have touched on Real Estate deposits before, but as they are still one of the number one topics I get asked questions about I thought that I would address them once more.

WHY DO I PAY A DEPOSIT?
The purpose of a deposit is to provide a monetary insurance to the Seller of the property you are buying that you are serious in your intent to complete the transaction. In other words, the money you pay in a deposit shows the seller that you will not walk away from the deal.

WHEN DO I PAY A DEPOSIT?
There are no hard and fast rules concerning when a buyer would pay a deposit. This is a term set forth in the contract to purchase. Depending on where you live, there may be an industry standard that governs when a deposit is traditionally paid. In White Rock South Surrey, in usual circumstances, a deposit is paid within 24 hours of removal of all subjects from when the deal goes firm. In a particularly hot "Seller's" market where there are multiple offers on a home buyers may present a deposit along with their offer in order to illustrate their serious intentions to purchase and their ability to purchase.

WHO DO I PAY THE DEPOSIT TO?
Most deposits are paid to the Real Estate Brokerage of the buyer's agent. They are held in the brokerage trust account and transferred to the lawyer prior to completion date to form part of the down payment. In cases of new construction, deposits are usually paid directly to the developer or to the developer's lawyer.

HOW MUCH OF A DEPOSIT DO I NEED?
There are no set rules about how much a deposit has to be. In new construction there may be a minimum amount that a developer is willing to accept as deposit. In resale this is something negotiated between a buyer and a seller. It's important to remember that the deposit shows the serious intent of the buyer to follow through with the purchase. With young, first time home buyers, $10,000 could be their entire savings and certainly not something that they would be walk away from easily. With older, more established buyers who are usually buying a higher priced home a larger deposit would be expected. As a general guideline, deposits are anywhere from 5%-10%.

ONCE I PAY THE DEPOSIT CAN I GET IT BACK?
Once a deposit is paid into the brokerage trust account it requires both the Seller's and the Buyer's signature to return the deposit to the Buyer. As you can imagine, the circumstances surrounding the returning of a deposit (essentially a buyer saying that they are backing out of the deal) are not likely to be ones that a Seller would sign off on without a being financially compensated. In these cases a judge would decide who would keep the deposit.


As always, any concerns about deposits should be discussed with your Realtor. 

Have I mentioned the importance of a great Realtor lately? Give me a call, I'd be happy to discuss it with you.

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