When you make an offer on a house you have to put down a deposit. Here are some things to keep in mind.
When must a deposit be paid?
In Ontario, the standard real estate contract gives the
buyer two choices; you can pay the deposit immediately when you make an offer,
or you can agree to pay it within twenty four hours after the seller accepts
it. Most buyers prefer the second option. If you are in a bidding war, you will
be encouraged to come up with the deposit immediately, to show good faith to
the seller.
Can the buyer get out of a deal by refusing to pay the
deposit?
No. Once the deal is accepted, you can’t change your mind.
If you do, the seller can sell the property again and if he gets less money
than you were going to pay the seller can sue you for the difference, plus
legal fees.
What happens if the deposit is paid late?
The seller has the right to cancel the deal. This is because
all time limits matter in a real estate contract and if you are late, even by a
few minutes, the seller can try and cancel. I have seen this happen many times,
especially when the seller knows that there is another buyer out there who will
pay more money. If you need more time to come up with your deposit, say so in
your offer.
How much should a buyer pay as a deposit?
This is a tough question, and will largely depend on where
your home is located. In Toronto, deposits are now usually up to 5 per cent of the
sale price. In Brampton, it is closer to 2 per cent. In some areas of Ontario,
deposits can be as little as a few hundred dollars.
Why does the deposit go to the seller’s real estate agent
and not the seller?
If the seller goes bankrupt or disappears with the deposit,
the buyer is not protected. When the deposit is held by the real estate
brokerage, it is in trust and is also protected by insurance so even if the
brokerage goes bankrupt, the buyer can get their money back.
If the buyer is unhappy with their home inspection, can the
seller refuse to return the deposit?
This happens more than you think. A deposit cannot be
released unless both the buyer and seller agree. If a seller believes the buyer
did not act in good faith in trying to satisfy their condition, whether it is a
home inspection, financing or a condominium status certificate review, they can
refuse to release the deposit. This means it stays in the broker’s trust
account until a judge decides who gets it, which can take years. As a precaution,
buyers should consider making two deposits in their offer, a small one of say
one per cent when the offer is accepted, and a second larger deposit once the
condition is satisfied.
Understand the rules about deposits before you sign any real estate contract. It is expensive to change your mind later
By: Mark Weisleder - Toronto lawyer, author, course developer and public speaker for the real estate industry.
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