When you first make or receive an offer, the purchase contract should indicate the amount of the deposit, method of paying the deposit, who will hold the deposit, and the due date of the deposit.
After the offer has been accepted, the deposit is sent to and held in trust by one of 3 parties (as stipulated by the purchase contract):
- The seller’s brokerage
- The buyer’s brokerage
- A lawyer
The method of deposit is typically wire transfer or direct deposit. This will be indicated on the purchase contract. The buyer and seller should both receive confirmation once the deposit has been received. If the deposit is not received by the due date, the purchase contract may be voided.
The deposit is held in trust until closing. While in trust, the deposit is kept in a separate account, is safe and secure, and cannot earn any interest. After conditions are removed and the deal goes firm, the deposit remains in trust up until closing.
At the time of closing, the deposit will go to the lawyers to form a portion of the purchase price.
If the deal falls apart and conditions have not yet been waived, the buyer will receive the deposit back. If there is any reason you can’t close the deal as the buyer after all conditions have been waived, then you forfeit the deposit to the home seller.
How much should you put down for a deposit? A higher deposit could mean a stronger offer as it shows the seller that the buyer is serious and committed to the offer. The deposit will also make up a portion of the required down payment. Read our blog on how much is required for down payments in Canada for more information.