The Life of a Deposit – From Realtor to Closing
Buying a property can be overwhelming. Knowing who does what, where your money goes and all the ins and outs will provide you with some peace of mind when it comes to your deposit. Typically, when purchasing you are required to put a deposit down. This would be handled by your Realtor or directly through your lawyer if you are purchasing privately. Your deposit counts towards your overall down payment & closing costs on the property.
As the buyer, when an Agreement of Purchase and Sale is made, your deposit serves the main purpose of providing security to the seller. This reassures the seller that you are serious about your offer and not as likely to back out of the transaction once things are finalized.
There is no predetermined amount required by law, however, ‘acceptable’ varies depending on location. Typically your deposit is due within 24 hours of the Agreement of Purchase and Sale being accepted.
“When you are serious about buying,
it is important to have your deposit funds readily available.”
So you’ve found a property, you have an accepted Agreement of Purchase and Sale, and you are ready to provide your deposit, but where does it go?
Deposit to Realtor
Your deposit will start at the listing brokerage, held in trust. (Not to worry, these accounts are regulated and audited!).
If you made an offer with a condition of financing and you are unable to secure financing, your deposit would be returned to you in full, without any penalties. **As long as your Agreement of Purchase and Sale does not state otherwise, read everything before signing!
You have now given your deposit, where will it go next?
Deposit to Lawyer
Once all conditions of the sale are met and you are getting everything in order to close your property, your deposit will be transferred and held by your lawyer.
The deposit is applied to the final purchase price on closing day and becomes part of your down payment (your total down payment amount is determined by you and your mortgage broker). Your lawyer will prepare a statement of adjustments, to let you know how much is owed upon closing OR if no financing was required, your closing costs would come out of the deposit and the difference would be given back to you by your lawyer.
Your lawyer will contact you prior to closing to review and sign all final documentation and you will be shown how your deposit is applied.
Final Thoughts
A deposit is part of your down payment and is made in good faith to show sellers you are a serious buyer. The money is then held in trust (not given to the seller) until the mutually agreed upon closing date. When speaking with your mortgage broker, ensure you provide proof of deposit so they can factor this in and add it to your down payment.