As a Muskoka Realtor I deal with many buyers who have come here from different locations and often, they have very different expectations regarding the deposit required when making an offer on a Muskoka property.
In the Ontario Real Estate Associations education materials Deposit is defined as
“a payment of money or other valuable consideration, given as a promise that the obligations in the contract will be carried out. The deposit will usually be forfeited if the contract is not completed. If the transaction is completed, the deposit is credited towards the purchase price”.
In reality it is always money but in theory it could be anything of value that the buyer is willing to take as surety. Remember it has to be taken care of by the listing brokerage so putting a “goat” or a “gold bar” into a trust account is going to be difficult. While the deposit is required throughout the province to make a legally binding agreement it varies from region to region in its size and manner of collection.
Below are some common questions and answers about deposits that I have been asked.
- When is the deposit due?
In Ontario, the standard real estate contract gives the buyer two choices; you can pay the deposit immediately when you present your offer to the seller, or you can agree to pay it within twenty four hours after the seller accepts the offer. Most buyers prefer the second option. If you are in a bidding war, you will be encouraged to come up with the deposit immediately, to show additional good faith to the seller. While it is not common there is also an option to pay it at a different date by simply making it a clause in the agreement of purchase and sale. In Muskoka It is quite common to make a small deposit within 24 hours of acceptance and then a larger 2nd deposit after all conditions are removed. This is because we sometimes have long closing dates (especially on cottages) and it is a way for a buyer to give confidence to the seller that they are very serious about owning the property but perhaps they want to wait until spring to close the deal.
- How much should a deposit be in Muskoka?
Deposits in Muskoka are typically less than in large urban area like Toronto. However they should reflect your commitment to the transaction and a larger deposit will definitely give the seller more confidence in your ability to purchase and your sincerity in wanting to do so. It is normal to make bigger deposit on more expensive properties. A typical deposit on a $1,000,000 property would be $50,000 whereas a deposit on a $250,000 one may only be $5,000. Remember that it is credited toward the purchase price so you have nothing to lose by putting a good size deposit with your offer if you can. If the offer is conditional on financing, inspection or any other specific due diligence item and that condition is not met you will get your entire deposit back.
- Can the buyer just cancel the deal by refusing to pay the deposit after the deal is accepted?
The simple answer is no. Once the deal is accepted, neither the buyer nor the seller can change their mind. If they do, the contract is in default. This is different from a particular condition in the offer not being met. In the event the buyer fails to make the deposit and the contract goes into default the seller can sell the property again and if they obtain less money than you were going to pay them, the seller can sue the buyer for the difference, plus legal fees.
4. Can the seller refuse to release the deposit if the buyer is unhappy with their home inspection?
Occasionally an inspection will reveal something that a buyer is unwilling to accept. A deposit cannot be released unless both the buyer and seller agree. If a seller believes the buyer did not act in good faith in trying to satisfy their condition, whether it is a home inspection, financing or a condominium status certificate review, they can refuse to release the deposit. This means it stays in the broker’s trust account until a judge decides who gets it, which can take years. This is another reason why we sometimes see the provision to make two deposits in their offer, a small one when the offer is accepted, and a second larger deposit once the conditions is satisfied.
- What happens if the deposit is paid late?
If you are late with the deposit you are in default. If you have a problem getting the deposit on time let your realtor know and we can usually amend the agreement to give you more time. However, the seller has the right to cancel the deal. All time limits matter in real estate contracts and if you are late, even by a few minutes, the seller can try to cancel. This can happen especially when the market is “hot” and perhaps another offer is waiting to be presented that could be for more money.
- Why does the deposit go to the listing broker in trust?
This provision is for the protection of the buyer. It is not to protect the brokerage commission as is sometimes believed. If the seller goes bankrupt or disappears with the deposit, the buyer would not be protected. When the deposit is held by the real estate brokerage, it is in trust and is also protected by insurance so even if the brokerage goes bankrupt, the buyer can get their money back.
I hope you find this informative. If you have any questions I am always happy to help.