A real estate deal is a big undertaking and can be daunting for many people – especially with the rising cost of living and growing inflation rates in the current economy.
If you have signed an agreement to buy a home but are now having second thoughts, or you are having trouble getting approved for a mortgage due to tougher stress tests and high-interest rates, you may be wondering if you can get out of the deal by just not providing a deposit.
The short answer is no. Just because you don’t provide a deposit does not mean a deal can be cancelled or nullified. But before I get into more detail about that, let me begin with the purpose of a deposit.
A deposit is essentially a gesture of good faith. When you, as a buyer, provide a deposit to a seller, it demonstrates that you are serious about purchasing the home, have enough funds to go through with the deal, and are comfortable taking on a certain degree of risk before the home changes hands.
Typically, the agreement will require that once a seller accepts your offer, you provide a deposit within 24 hours or some other specified time period. The deposit will be placed in trust until the deal closes, and it will be applied to the home’s total purchase price when the transaction is completed (when you pay the balance of the purchase price and, in return, take possession of the property to move into).
Usually, the deposit is held by the seller’s brokerage if they are represented by one. The money can be held by a variety of people, but the trustee will be agreed upon by the parties and included in the terms of the agreement.
But even if you haven’t provided a deposit, the agreement is a legally binding document once signed by all parties. Not paying a deposit on time may be a breach of the agreement. This can result in the seller cancelling the deal altogether and even pursuing legal action against the buyer, but the seller could also take legal action to require the buyer to follow through on the agreement. There are many civil cases that support a seller’s right to do this, and many have resulted in significant penalties for those who tried to walk away from their signed deal.
To avoid getting into this situation in the first place, I highly recommend that you carefully reflect on whether you are serious about a particular property before making an offer. To help you make the decision, I suggest that you discuss with your real estate agent, real estate lawyer and mortgage lender things like the market conditions, your finances and priorities, and the contract’s fine print.
If you have a question for Joe about the home buying or selling process, please email email@example.com
This column is for general information purposes only and is not meant as legal or professional advice on real estate transactions.
CC: Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO)