I’m thinking about buying my first home this year. What can you tell me about putting down a deposit, and how much will a deposit cost me?

Let’s start with your second question: there is no standard amount for a deposit, so I can’t tell you how much you will have to pay to firm up an offer. In the event that you find a property that’s right for you but you feel the seller is asking for too much money up-front, you could ask your salesperson to negotiate with the seller’s representative about the deposit amount, as well as the timing of any payments. Deposits must be paid whenever the parties agree they are to be paid. It might be expected when the offer is made, very shortly after the offer is accepted, or another time that’s agreed upon by both you and the seller.

Providing a deposit is essentially a good faith gesture: paying the seller a deposit shows that you’re serious about buying the property, you have the financial means to finalize the deal, and you’re comfortable taking on some level of risk before the property changes hands.

Should the seller accept your offer, your deposit will usually be placed in trust (most often with the seller’s brokerage, if they are represented by one) until the deal closes, when it will then be applied to the home’s total purchase price. However, the parties agree where the deposit will be held as part of the terms of the agreement.

If you require financing to purchase the property, you will also have to make a down payment. The distinction between the two terms is that the deposit is the money you pay to secure a property, while the down payment is the money you must personally pay to the seller in order to secure mortgage financing. In most cases, the down payment consists of the deposit plus any additional necessary funds. Down payment requirements can vary, but the Government of Canada set some important rules a couple of years ago. Talk to your personal banker or mortgage broker to get a better idea of how much you might have to pay out as a down payment.

Buying real estate is a serious commitment, and in most cases real estate transaction deposits are not refundable. (Offers that have conditions attached – such as the buyer being able to obtain financing or sell their own home, or the property passing a home inspection – can be exceptions when the condition is drafted so the deposit will be returned to you if you do not waive or fulfill the condition within a specified time). Should you make an offer and then change your mind and attempt to walk away from a deal, you will likely lose your deposit and possibly face a lawsuit for any damages suffered by the seller.

If you have a question for Joe about the home buying or selling process, please email information@reco.on.ca.

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.

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