The Life of a Deposit – From Realtor to Close

Buying a property can be overwhelming. Knowing who does what, where your money goes and all the ins and outs will provide you with some peace of mind when it comes to your deposit. Typically, when purchasing you are required to put a deposit down through your realtor. Buyers are typically relieved to find out that their deposit counts towards their overall down payment & closing costs. 

As the buyer – when an Agreement of Purchase and Sale is made, your deposit serves the main purpose of providing security to the seller. This reassures the seller that you are serious about your offer and not as likely to back out of the transaction once things are finalized. 

There is no pre-determined amount required by law, however, ‘acceptable’ varies depending on location. Typically your deposit is due within 24 hours of the Agreement of Purchase and Sale being accepted.

Here are five ways to increase your pre-approval amount if this happens to you.

“When you are serious about buying, it is important to have your deposit funds readily available.”

So you’ve found a property, you have an accepted Agreement of Purchase and Sale, and you are ready to provide your deposit, but where does it go?

The Life of a Deposit – From Realtor to Close

Deposit to Realtor

Your deposit will start at the listing brokerage, held in trust. Not to worry these accounts are regulated and audited. The money held in these accounts does not go toward the brokerage’s overhead expenses. While your money is sitting in trust (until it makes its way to the solicitor) it will be insured in the event a claim needs to be made (this is extremely rare). 

If you made an offer with a condition of financing and you are unable to secure financing, your deposit would be returned to you in full, without any penalties. **As long as your Agreement of Purchase and Sale does not state otherwise, read everything before signing.

We have now given our listing brokerage our deposit, where will it go next?

The Life of a Deposit – From Realtor to Close

Deposit to Lawyer

Once all conditions of the sale are met and you are getting everything in order to close your property, your deposit will be transferred and held by your lawyer. 

The deposit is applied to the final purchase price on closing day and becomes part of your down payment (your down payment is determined by you and your mortgage agent) and the deposit would have been taken into account when getting approved for financing. Your lawyer will prepare a statement of adjustments, to let you know how much is owed upon closing OR if no financing was required, your closing costs would come out of the deposit and the difference would be given back to you by your lawyer.

Your lawyer should contact you prior to closing to review all documents with you showing where the deposit was taken into consideration.

The Life of a Deposit – From Realtor to Close

Final Thoughts

A deposit is part of your down payment and is made in good faith to show sellers you are a serious buyer. The money is then held in trust (not given to the seller) until the mutually agreed upon closing date. The deposit you give is insured all the way through until close when it is handed off to the seller. When speaking with your mortgage agent ensure you provide proof of deposit so they can factor this in when qualifying you for a mortgage and add it to your down payment.

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