According to the Real Estate Council of British Columbia, the contract law states a deposit is not required to create a binding contract as the form of consideration is satisfied by the mutual exchange of promises between the buyer and seller. Although a real estate deposit is not legally required, it has become a standard to include it on the contract as a sign of intent to purchase and is provided once the agreement has become a firm and binding offer. The deposit usually represents 5-10% of the purchase price and is most often paid to the buyers Real Estate companies trust account. By providing a deposit from your resources, this forces the buyer to have some “skin in the game,” making it more unlikely to walk away from the Real Estate transaction.
When does the offer become firm and binding?
An offer becomes firm and binding when all subject to clauses have been removed or fulfilled on the accepted offer. These include topics like “subject to the buyer obtaining suitable financing” or “subject to the buyer at the buyer’s expense, obtaining and approving an inspection report.” The contract will usually state that the deposit is then payable within 24-48 hours of subject removal by way of bank draft, and to where this deposit should be made payable to.
If the deposit is not paid within the stated period, this is considered a breach of contract and the seller has the right to terminate the agreement.
Why is the deposit paid after the subjects have been removed?
If the deposit was paid before the subjects were removed and the matter was not satisfactory to the buyer, the inspection report, for example, both parties would have to be in agreeance that the real estate deposit is to be returned to the buyer. If the buyer and seller did not both agree to this, court proceedings would be required to have the deposit released. This would end up creating court costs for the buyer to try to retain their money. So simply put, the deposit is payable upon removal of subjects to protect the buyer.
Where does the deposit go to completion?
The deposit forms part of your down payment, so the sediment ends up going to the seller, to form part of the purchase price.
For a full and detailed article, you can visit https://www.recbc.ca/psm/deposits/.
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This post was written by zack