I’m buying my first home. Is there a standard amount that I should offer as a deposit?
Congratulations on purchasing your first home!
The short answer to your question is no, there is no standard amount for a deposit. This is something that can be negotiated between you and the seller.
When placing an offer on a home, the deposit provides reassurance to the seller that you are acting in good faith and demonstrates that you not only have the means to buy it, but that you are comfortable taking on some level of risk until the deal closes. For example, in the event that your agreement falls through due to unfulfilled conditions related to financing or a satisfactory home inspection, written consent from both the buyer and seller is required for you to get your deposit back.
When you make an offer to the seller, the deposit could be due once the offer is made, once the offer is accepted, or at another agreed time.
In today’s hot housing market, sellers often have many offers to choose from and they may be tempted to accept an offer with a larger deposit. However, it’s important to make sure you don’t break the bank. Talk with your real estate representative to make sure you’re committing to a suitable deposit amount that you are comfortable providing in a potentially short time frame. It’s also important to remember that if things don’t go as planned, the deposit could be tied up for a long time.
If the seller accepts your offer, it becomes an Agreement of Purchase and Sale, which is a binding contract. Your offer will outline where your deposit will be held, usually until the closing date.
In most cases, a deposit will be handled by the seller’s brokerage, which will place it in a trust account until it becomes payable. It is up to the brokerage to disclose how much interest will be paid on the deposit, if any, and under what conditions.
A deposit held in a brokerage’s trust account is insured under RECO’s Deposit Insurance Program, which provides protection from any fraud, insolvency or misappropriation by a salesperson or brokerage. This protection is only available when you work with a registered real estate agent.
So once the deal closes, the deposit will be applied towards the purchase price or down payment.
While the language of your Agreement of Purchase and Sale may be clear about what will happen to the deposit if a condition is not waived or fulfilled, there are certain steps that need to be taken for the deposit holder to disburse any money that is being held in trust. RECO requires the brokerage holding the deposit to obtain written direction from you and the seller with instructions on how the deposit money is to be disbursed if it is not to be credited to the purchase price when the transaction closes.
If you and the seller are unable to come to an agreement, it becomes a legal matter. The courts would then have to decide how the money will be distributed, which can sometimes take a long time.
When it comes to buying your first home, make sure you are making well-informed decisions. A registered real estate professional can provide guidance about your deposit, as well as other key aspects of the process.Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.