DEPOSITS IN REAL ESTATE
Updated: Nov 10, 2021
By Ali Kaya
When buying or selling real estate, clients generally have lots of questions. Some of which have to do with the deposit that goes in a deal. In this article, I'd like to explain a bit more in detail of what a deposit entails and answer some of the most common questions I get asked. In any kind of real estate, a deposit is generally standard, like purchasing a car. It's a show of good faith and that you're serious about the purchase.
When dealing with deposits, it's important to remember that while it may not be legally required, it is a standard practice when buying real estate. Sellers like to see some upfront cash to have a bit more confidence in the sale. Especially in Vancouver where real estate is very sought after, seller's sometimes base their decision on offers in regards to who has a better financial standing and their deposit. When working with buyers, I get asked questions about deposits all the time. I find that the consumer is getting more and more information about the industry and the market as a whole which gives you such a great advantage when entering the market. However to recap and get more insight is never a bad thing, so let's get into it!
HOW MUCH OF A DEPOSIT DO I NEED?
As I said, there isn't a requirement of a deposit, however standard practice says you should have one. Due to this, there isn't a monetary minimum or limit. The accepted standard however is 5% of the purchase price. I generally like my clients to have at least 5% or more ready as having less than 5% sometimes may rub the seller the wrong way.
DOES THE DEPOSIT NEED TO BE MONEY?
The simple answer is no, however it is standard 99%of the time. You may have a vintage car or a boat that you can negotiate as our deposit. Again, everything in the deal is negotiable. However, I generally like to stay away from this as once again the seller may get thrown off a tad. It's safe to use money as your deposit and is what the majority of sellers are looking for.
WHEN DO I PAY MY DEPOSIT?
The accepted standard is either upon subject removal or within 24 hours of subject removal. Once again your deposit due date is negotiable so you can have it before subject removal (generally very risky) or sometime after. You can have 2.5% due upon subject removal and 2.5% due in 30 days. It's about the mutual agreement between you and the seller. My standard practice is the deposit being paid 24 hours upon subject removal to ensure everything is in order and the deal is confirmed. The last situation you want is to pay a deposit before an inspection or financing is secured and you lose out on your money.
WHO HOLDS MY DEPOSIT?
The deposit is held in the Buyer's Agent's Brokerage's Trust Account. This account is required by the Council to hold all monies to do with the transactions of the brokerage. It is completely safe and will only be taken out or paid upon completion of your agreed upon terms and conditions with the seller. So don't worry, you're in good hands.
WHAT IF I DON'T HAVE A DEPOSIT?
A deposit is not required but again is the standard practice. If you don't have the 5% deposit then I would suggest working with your bank or family to figure out a plan to get it. I find that the biggest reason why people can't afford Vancouver real estate is not only the price, but the deposit/down payment that's needed to secure the home. Finding ways to even have 3.5% is a big advantage and your ability to save and have that deposit should not be overlooked.
HOW CAN I PAY MY DEPOSIT?
Cash and personal cheques are out of the equation. It should be a Bank Draft but you can also pay via a wire or direct deposit.
These were just some of the most common questions I get asked about deposits when buying real estate today. Over the years of being a Realtor, I've heard and seen deals go wrong where deposits are lost and ownership chances are taken away because of it. To be even more personal, it's happened to my parents while I was a young boy because the Realtor and those he worked with were not competent enough. So this topic is quite close to home for me, and it's because of these reasons I represent my clients with the best knowledge and advice I possibly can. My job is to ensure your goals are achieved as stress free and as simple as possible.
If you have any more questions regarding buying or selling real estate in Vancouver and any of the surrounding areas, you can always reach out to me. Thank you for reading this article and I sincerely hope you received some value and insight from it. Please browse around my website and find any other articles that may be of interest to you. I hope to grab a coffee with you soon and discuss your goals in real estate. Talk soon and have a wonderful rest of your day!
By Ali Kaya