Posted by genieSABRE on Aug 29, 2012
Initial Deposit Money in Real Estate Transactions

Initial Deposit Money in Real Estate Transactions

What happens to your Initial Deposit?

 

Source: Hannif Highclass c/o Genie Sabre Realty Inc.
Publish:MY BLOG: Toronto Real Estate: June 16, 2011

 Your Money In Trust … A Trust Account … What Should You Expect?

Here is a email recently I got from one of my Buyer Clients:

“I recently gave personal cheque to Mr Hannif (with the initial offer) and that has been cashed from my

account already. Is that the norm as I was told that the cheque will stay with Vendor’s lawyer and won’t be cashed
until the closing ???”

Your Money In Trust … A Trust Account … What Should You Expect?

When buying a real property in Ontario it is customary for a deposit to go along with the offer “herewith” as a sign of good faith that the Buyer will go through with the deal and close as scheduled. The Buyer sometimes uses the term “Upon Acceptance” instead of herewith. No need to go into details it is self explanatory.

In most Agreements of Purchase and Sale, the Buyer gives the deposit to the Seller’s Brokerage (deposit holder) to be held in trust. and again sometimes this deposit check is made out the the Sellers Lawyer (is now the deposit holder) also to be held in Trust.

SAMPLE OF AGREEMENT OF PURCHASE AND SALE BELOW.

purchase agreement

The Actual wording of the Agreement document reads as below

DEPOSIT: Buyer submits ……..Herewith…………………………………………………………………………………………………….
(Herewith/Upon Acceptance/as otherwise described in this Agreement)
……………….  Ten Thousand  Dollars.……………………………………………………………………………………………
Dollars (CDN$)…. 10,000 ……………………………..
by negotiable cheque payable to……………………….XYZ Realty Inc.……………………………. “Deposit Holder”
to be held in trust pending completion or other termination of this Agreement and to be credited toward the Purchase Price on completion.  For the purposes of this Agreement, “Upon Acceptance” shall mean that the Buyer is required to deliver the deposit to the  Deposit Holder within 24 hours of the acceptance of this Agreement. The parties to this Agreement hereby acknowledge that,  unless otherwise provided for in this Agreement, the Deposit Holder shall place the deposit in trust in the Deposit Holder’s  non-interest bearing Real Estate Trust Account and no interest shall be earned, received or paid on the deposit.”

 

WHAT HAPPENS TO THE MONEY THAT IS IN THE TRUST ACCOUNT.

There are only three ways that the deposit can come out of the trust account.

[1] The deal successfully closes: The first point is pretty clear, a happy ending for all involved and the most normal. The deposit holder with the proper documentation withdraws the funds from the trust account and the money is disbursed according to Statement of Adjustments.

[2] When the deal does not close: The buyer and seller sign a Mutual Release where the deposit is goes.  Sometimes the deal is conditional on the buyer being satisfied by a home inspection and that the buyer has to tell the seller that they aren’t happy. or the offer is conditional on the Buyer getting a mortgage and the buyer fails to get one. Under similar circumstances the mutual release is signed and the buyer receives the deposit money back from the deposit holder.

[3] A court tells everyone what to do with the deposit:  The third point; by court order, means there are issues that can not be resolved between the Buyer and Seller and the Court must decide what is appropriate. In most cases when deals don’t close, the buyer and seller will agree to end the transaction and sign a mutual release. However, when they can’t agree the deposit must remain in the brokerage or lawyers trust account until a court order is obtained.  This is a rare occurrence.

In closing: Almost in all real estate transaction in Ontario a deposit is required by the seller. The amount is flexable and may varies from 5% to 10% or more. In a hot sellers market a larger initial deposit shows that the buyer is serious and has a better chance on getting the house (especially on multiple offers)

By understanding the timing of how to make deposit cheques payable in a real estate deal and the consequences of what happens to the deposit when deals don’t close, both buyers and sellers can be better prepared to handle any deposit related issue in a real estate transaction. Even though the above YouTube is from USA. You can rest be saaured the same is 100% valid for ALL agents in CANADA


 


REMEMBER: Real Estate

Home Owners: If, you already own a home – good for you!

May you be blessed with
warmth in your home,
love in your heart,
peace in your soul
and joy in your life.

However, if for any reasons you do intend to move due to upsizing, downsizing, moving to different town or ??? —
genieSABRE recommend you check out our main web site. You will not be disappointed!

Renters: New immigrant, 1st. Time Buyers Renters – its time to stop making your landlord rich.
genieSABRE FREE consultation, will help you & guide you through the whole process from finding the right home, to mortgage approvals, home inspection, lawyers etc Visit our main web, you will not be disappointed!

Real Estate Investors: Home ownership should be your 1st. priority. If you own your own home – Good for you. But now is the time to take that second step – Buying Rental Property for investment. Commercial, retail or home.
genieSABRE has extensive knowledge and experience in this field. As a developer of commercial /retail plazas (built 3 so far) and owners of residential rental homes, we can guide and advice you as to what is best for you according to your personal financial position.

Call: Hannif Highclass @ 416.444.4252

http://www.geniesabre.com

 

Play Video

Simplifying the Complex Decision Making Process!

 

Ready to Sell or Looking to Buy?

Call: Hannif Highclass @ 416-444-4252

"JUST DO IT! -- THIS IS YOUR WEB BLOG -- I DID MY PART -- NOW IT'S YOUR TURN

YOUR COMMENT NEEDED BELOW!

If we open our eyes - we can see the goodness around us!
Do you agree?

Post a Comment

Leave a Reply

Your email address will not be published. Required fields are marked *


*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

rebatereps.ca