Over the past few weeks I have been meeting with many new first time home buyers and every single one has the same quesion -why do I need a deposit?
A deposit is a very key component to the the offer. It is a show of good faith to the Seller from the Buyer that you will be purchasing this property. The deposit is always inserted on the offer and should be between 5%-10% of the purchase price. Once all of the subejcts on the offer are satisfied, the Buyer is happy and defintely knows that they would like to purchase the property, it is at that point that I take the deposit. The deposit is generally always taken in the form of a bankdraft or certified check. The days of taking a cash deposit, or a personal check have gone the way of the dinosaur. As per the contract the deposit is made payable to the Buyers brokerage "in trust", in this case Prompton Real Estate Services "In trust".
Buyers are generally wary of the deposit, as they think that the Seller or the Realtors have access to those funds. In fact nothing could be further from the truth. As the Buyers agent I collect the deposit from my Buyer and as per my contract I have 24 hours to submit it to my office. More often then not having the deposit money on my person makes me incredibly nervous so I make a special trip to my office right away to submit it. The deposit is held in a pooled trust account at the Buyers Agents brokerage. This trust account is run in the terms and conditions that are set out by the Real Estate Act. An audit is performed on the account on a bi-yearly or yearly basis and the account must balance to the penny.
If the deposit is held there more then a month it can accrue interest that goes back to the Buyer. This can only be done if a social security number of the Buyer is attached to the deposit. More often then not, it does not sit there long enough, and can't accrue interest. In any case the interest is fairly in substantial as there is not a high rate of interest offered on a trust account.
Once the Buyer makes an appointment to go to the lawyers office to sign all the land transfer documents, the deposit will be waiting there as part of the purchase price.
It is important not to mistake the deposit for the down payment. For example if I have $50,000 to put down on a Real estate purchase as my down payment, I can use $25,000 as a deposit and use the balance of that money as my down payment. The deposit is always credited to the Buyer as part and parcel of the down payment.
So in answer to all of the questions, yes you do need a deposit. If the Buyer fails to pay the deposit then the Seller may, at the Sellers option, terminate the contract.