Deposit when purchasing a house

Real Estate

When you submit an offer to buy a home, the deposit demonstrates your commitment to the seller to complete the purchase.

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The deposit is reassurance that you are acting in good faith and have the means to purchase the home, it also shows that you are comfortable taking on some level of risk by putting down a deposit until the deal closes.

The agreement between you and the seller will determine the amount of the deposit and when it is due, and is something that can be discussed during negotiations.  It may be due at the time the offer is made, once the offer is accepted by the seller or as otherwise agreed.

Once the deal closes, the deposit will be applied towards the purchase price or down payment.

Is there a standard amount?

There is no minimum or standard amount for a deposit.  It’s something that can be negotiated between you and the seller.

It may be guided by local practices, market conditions and the value of the home you’re buying. In hot housing markets, some sellers may see a larger deposit as a stronger level of commitment from the buyer—and they may factor that in when deciding which offer to select.

Your real estate representative can suggest a suitable deposit amount, but remember that the deposit amount should be a number you are comfortable providing in a potentially short timeframe (for example, 24 hours).

Where does the deposit go?

In most if not in all cases, the money doesn’t go to the seller right away. Your Agreement of Purchase and Sale (APS) will specify where your deposit will be held, usually until the closing date. 

Often, the deposit will be made out to the seller’s brokerage “in trust” and held in the brokerage’s real estate trust account until it becomes payable according to the agreement. The brokerage must disclose under what conditions and in what amount, if any, interest will be paid on the deposit.

When the deposit is held in a registered brokerage’s trust account, the funds are insured under RECO’s Deposit Insurance Program against fraud, insolvency or misappropriation by the brokerage. That protection is only available if you work with a registered real estate representative. 

What happens to your deposit if the deal does not become firm?

Your APS may specify what will happen to the deposit if the deal does not become firm (for example, if a condition is not waived or fulfilled).

However, there are certain steps that a brokerage holding a deposit must take to disburse any money that is being held

 “in trust.” The law requires the brokerage to obtain written direction from you and the seller on how the deposit money is to be disbursed. If you and the seller can’t agree, it becomes a legal matter. The courts would then have to decide how the money will be distributed.

Similarly, a transaction may fail to close, and the fault may lie with either the buyer or the seller. No matter who is at fault, written direction from both the buyer and seller will be needed for the brokerage to release the deposit funds. Otherwise, it becomes a legal matter for the courts.