Selling Your Home – Your Buyer's Deposit

Truly, hearing the words We love your house we ll buy it is any home seller s dream. But what happens once a buyer indicates a real desire to purchase your property?

When this happens, it is customary for home sellers to request buyers to give, or for buyers to offer the seller, a small amount. This amount is called a deposit. A deposit, otherwise known as earnest money, is given to show a sincere intention of completing the purchase transaction. It can be likened to a reservation fee.

There is no prescribed amount; the deposit can be as small as $500 or as large as 5% of the total purchase price. The final figure will depend on you and your buyer. Once the buyer hands you a check covering the requested amount, what should you do with it?

Ideally, set it aside, or have someone hold it in trust. Until the transaction has been completed, the deposit is not yours. When you have your purchase contract drafted, make sure that the deposit your buyer made is mentioned, and explicitly specify the conditions wherein the deposit can be returned in full or when the deposit will be forfeited in favour of the seller.

Normally, deposits are returned when the transaction cannot be completed due to external factors that are beyond the control of the buyer. An example would be when the buyer is unable to get the appropriate financing.

Deposits are forfeited when the buyer backs out of the agreement for no just cause (just didn t want to buy the house anymore), or reneges on a clause stated in your purchase contract (did not pay the deposit on a specified date).

In case the transaction pushes through, the deposit should be credited to the buyer, meaning the amount should be deducted from the total purchase price. It is only when this occurs that you can finally consider the buyer s deposit, as yours.

Recent Posts