Let’s talk about talk the buyer’s real estate deposit in the BC Contract of Purchase and Sale in detail. First of all, what exactly is a deposit? What does it cover and when do you need to pay it?
Technically a deposit is defined as “A sum payable as a first installment on the purchase of something or as a pledge for a contract, the balance being payable later.”
In real estate this sum and date are typically connected to the date of your offer’s subjects and/or the date of the offer itself.
Subject Removal-Deposit Due
The subject removal date is outlined with each subject in the “Terms and Conditions” section of your Contract of Purchase and Sale offer. Typically, subject removal dates are 7-10 days after the date offer. Once the buyer is completely satisfied with the property and removes their subject conditions (making the contract legally binding on the buyer as well as seller), the deposit is required to be paid. The standard timeline for the deposit to have been paid and proof of the deposit being given to the necessary parties involved, is 24-48 business hours, and clarified under the “Deposit” section of your CPS.
It is extremely important that your deposit is pain in full and within the timeline specified as a buyer could find themselves in one of the following situations: a breach of contract which could result in the contract being voided or getting sued.
Deposit Amounts
The standard deposit amount is 5% of the initial asking price. That said, a buyer can propose any deposit amount they want. A buyer can also alter when the deposit is paid depending on the circumstances of the transaction.
Often buyers will offer more than the typical 5% if they are competing with other buyers in a multiple offer situation this is typically done to make their offer more attractive as a bigger deposit shows that the buyer is serious as they are putting more money at risk to lose if they do not move forward with the purchase.
Buyers needing a long period of time to complete may offer a bigger deposit to make the sellers more comfortable. Or the sellers may require a larger deposit from a buyer if they are unsure the buyer will complete on a sale.
Who Gets The Deposit?
The most common way deposits are paid are via a Bank Draft and paid to the brokerage of the Buyer’s agent. It is then held in the brokerages Trust Account until the deal completes.
Although not common, in some cases the deposit may be paid directly to the sellers with an accepted offer or upon subject removal and will therefore be made out in the names of the sellers.
Also, it is entirely possible to not get your deposit back if you do not complete the transaction on the completion date or move forward with a deal, the seller can request the deposit. This is why it is vitally important to make sure all items that are required to be done and are date specific, are done.
What Does The Deposit Actually Pay For In The End?
A deposit is an initial payment near the start of the transaction to make the purchase legally binding and the ensure the buyer has enough incentive to complete to make the seller comfortable. The deposit becomes part of the buyers down payment on the property. The deposit, down payment, and all other funds including mortgage money goes to the seller on the completion in exchange for the ownership of the property via the conveyancing done by the lawyer or notary being used to complete your transaction.