How Does a Real Estate Deposit Work in the GTA?
February 18, 2023 | Uncategorized
How Does a Real Estate Deposit Work in the GTA?
The Buyer pays a real estate deposit upon a successful Purchase and Sale Agreement for a home or condo.
The deposit is to provide security to the Seller in the act of good faith that the Buyer has a financial stake in the agreement. The deposit forms part of the agreement and is applied against the Buyer’s down payment at closing. A deal is not firm and binding without a deposit cheque, so this is an integral part of the negotiation process.
When Do I Pay the Real Estate Deposit?
In the GTA, the real-estate deposit is paid ASAP!
However, the answer to this question can vary by local practice. There are subtle differences in the management of deposit cheques, depending on how competitive your marketplace is. In a hot market, typically, the expectation is to provide the deposit cheque with the offer itself. This means working with your financial institution for the funds in advance of submitting your offer paperwork. Your realtor will present your bid on the property with the deposit “herewith,” as stated on the first page of your Agreement of Purchase and Sale. Your offer should also include a photograph of your certified deposit cheque confirming you have the physical funds available and ready to go!
Knowing that the deposit is an essential component to a successful offer, it’s vital to have access to cash-on-hand when searching for a home or condominium.
You will want the ability to withdraw funds for the deposit cheque at a moment’s notice. Many times, buyers are scrambling at the last minute to access funds from RRSPs or stocks and bonds, which isn’t always easy.
If you are not in a competitive offer scenario, it may not be necessary to submit your deposit cheque with your offer (“herewith”). If this is the case, the deposit cheque is typically due within 24-hours after accepting an offer.
How Much Should My Deposit Be?
What is considered a good deposit amount in the GTA? There isn’t a fixed rule as to what constitutes a sufficient amount to include in a deposit. However, In Toronto, deposits are generally 5% of the offer price at a minimum. Most Seller’s will not accept an offer with a lower amount.
Don’t forget that your deposit cheque applies against your total downpayment due on closing. These funds are not “over and above” costs.
Do the Funds for a Real Estate Deposit Need to be Certified?
Yes. The funds need to be in the form of a bank draft or certified cheque. Some banks may charge you a small processing fee to arrange the cheque. The other alternative is to wire the funds directly to the listing brokerage’s trust account via EFT.
Where Does my Real Estate Deposit Go?
The deposit holder is identified on the first page of the Agreement of Purchase and Sale ( this is generally the listing brokerage’s trust account) . All deposit funds need to be made out to the holder’s name. Remember, it’s critical to ensure there are no spelling mistakes in the “payable to” section of your deposit cheque. Deposits are traditionally held by the statutory Real Estate Trust Account of the Seller’s brokerage. Then, the cheque remains in trust until closing and is applied against the purchaser’s downpayment. If interest is payable, it must be stated in the agreement. A real estate agent does not personally hold onto the deposit.
Is a Real Estate Deposit Refundable?
Often, a real estate deposit is returned to a buyer if there are conditions in the offer that are not satisfied.
For example, if you have made an offer that includes a Condition of Mortgage Financing, but the bank refuses your application during the conditional period.
If you’re unable to proceed with your purchase because the condition cannot be met, both the Buyer and Seller need to sign a Mutual Release Form before your certified deposit cheque is returned to you, the Buyer.
Should the Seller suspect you have not acted in good faith, they may refuse to sign the Mutual Release Form and hold back your deposit. If this is the case, the funds will remain in the named trust account, and the dispute between the Buyer and Seller would become a legal issue. A judge would eventually release the funds (to the Buyer or Seller) through a court order if not settled in advance.
What Happens to My Deposit if I Default on Closing?
Many people assume that the Seller automatically gets to keep the deposit if the buyer defaults (cannot close). However, this is not always true. In fact, cases that involve deposits of $25,000 or less are decided in small claims court and significant deposits (typical to Toronto’s market) in the Superior Court of Justice. In most scenarios, if the Buyer defaults, the Buyer does not get their real estate deposit back. In addition, the Seller may sue the Buyer for damages, legal fees, and carrying costs.
