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By LegalMatters Staff • To show their sincerity prospective home buyers often will include a deposit in their offer to purchase. The deposit forms part of the agreement and is applied against the buyer’s down payment at closing.
When an offer to purchase is drafted it will include conditions that have to be met before it is officially binding. Common conditions include a satisfactory home inspection and financing approval.
“If any condition in the offer to purchase is not met, the deal could fail and is no longer binding on either party,” says Edmonton real estate lawyer Sean Schaeffer. “In most cases, the deposit will be returned to the would-be buyer and the seller can then receive new offers on the property.”
He says some first-time homebuyers are confused about the difference between a deposit and a down payment.
“A deposit is a sum of money held by a trustee when a buyer makes a purchase offer to show the buyer is serious about the offer,” Schaeffer explains. “Unlike the down payment, the deposit is not a fixed percentage of the purchase price and can range from two to 10 per cent of the property’s worth, depending on the local real estate market and the property’s value.”
Conversely, the down payment is made after the offer has been accepted and is typically paid at the closing of the sale, he says.
“The percentage required for a down payment is a minimum five per cent of the property’s value and it can go up from there depending on several factors, including the lender’s requirements, the type of loan and the buyer’s financial situation,” Schaeffer adds..
