One of the basic elements that must exist in a contract is “consideration.” Consideration is what each party in a contract receives in exchange for its promise to act in a specified way. Typically when selling real property the seller receives money, and the buyer receives the title to the property.

When a buyer makes an offer to a seller, the offer must be in writing, and should be accompanied by a deposit. The buyer may withhold the deposit until the offer is accepted, but it will typically be required within two business days of acceptance.

What is the deposit for?
The deposit can be as small or as large as the buyer and seller agree to, and there are different reasons either party may want to offer or accept different amounts of money. The deposit is typically viewed as security for the seller; once the offer is accepted and all conditions are removed (ie. the property is sold) the deposit and the contract are what ensures the property will change hands on possession day. If for some reason the buyer is unable to fulfill their part of the bargain, and purchase the property for any reason, they forfeit their deposit to the seller. The seller may then have grounds to pursue further legal action against the buyer (ie. sue them).

When is a deposit refunded, and when is it forfeited?
A deposit is refunded (or returned) to the buyer if the buyer and seller do not come to an agreement. If conditions are included in the purchase contract, and the conditions are not removed the deposit is refunded to the buyer. If the contract is agreed to, and all conditions are removed (the property is sold) and the buyer backs out, the deposit is forfeited, if the seller backs out the deposit is refunded. If a party backs out of the deal, the other party may have other legal recourse (ie speak to your lawyer about this!). Of course, all of this is spelled out in the contract and may vary depending on what the parties agree to.

What is the difference between an initial and an additional deposit?
In many purchase contracts, the buyer and seller will agree to an initial deposit, as well as an additional deposit. Typically the initial deposit accompanies the offer, or is delivered once the offer is accepted. If there is an additional deposit it is most often delivered if and when all the conditions are removed. Again, this is outlined in the contract so if you are uncertain about the timing of deposits, or have specific requirements for them be sure to ask.

How much are deposits?
The deposit can be as small or as large as the buyer and seller agree to. The buyer may choose to offer a large deposit to make their offer more attractive, and potentially encourage the you to make other concessions such as the purchase price or possession date. As the seller, you may decide to counter a buyer’s offer asking for a larger deposit, and therefore more security for the deal to close. The size of the deposit may also be affected by the value of the property – more expensive properties may require a larger deposit.

What is the difference between a deposit and a down payment?
The deposit counts towards the down payment. If you were purchasing a $200,000 home, with 20% down, your total down payment would be $40,000. If you gave a $1000 initial deposit, and a $4000 additional deposit, you would owe the remaining $35,000 of your down payment at closing.

Who holds the deposits?
In most cases the seller’s brokerage holds the deposit in a trust account. There are strictly enforced rules regarding trust accounts in Alberta. On some occasions the deposit is held in a lawyer’s trust account. If you’re purchasing a home from a builder the deposit may be put into their general account and not “held” at all. If you’re selling your home privately, the buyer may even agree to let you to hold the deposit (speak to your lawyer about this!). Some of these situations are safer than others, so if you’re making a deposit be sure to ask where the money will end up.

When is the down payment required?
A few days before the buyer takes possession of their new home they will meet with their lawyer to sign a number of documents. At this time they will also be required to provide the down payment on the home, as well as any other outstanding fees, such as lawyer’s fees, and any taxes the you may have prepaid.

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