Does Size Really Matter?

depositIt’s common practice in the area that I trade to see deposits that accompany offers to purchase for a mere $500 or $1000. I know that is surprising to my colleagues who practice real estate in the GTA (and it should be). Personally, I think it’s a poor practice.

From a seller’s perspective, a deposit is a sign of good faith that the buyer, who has contracted to purchase the property, will complete the transaction on the date specified in the contract. Meager deposits often leave sellers questioning a buyer’s sincerity or commitment. If you’re selling your home, would you rather receive a deposit of $500 or one that’s 5% of the purchase price? Assuming a purchase price of $250,000 (another surprise for my Toronto colleagues that there are houses that sell for $250,000), a deposit of 5% is $12,500. A buyer is much more likely to walk away from a $500 deposit than a $12,500 deposit. (Remain calm sellers. Buyers can’t just arbitrarily decide to walk away from a transaction by forfeiting the deposit).

Okay, I know that legal minds are already poking holes in the seller’s point of view with regards to the size of a deposit. I know that legally if a buyer fails to complete the transaction the seller is not automatically entitled to the deposit. My point however is that larger deposits do matter. What’s the issue of putting down more than $500? The buyer has to have a minimum 5% downpayment in order to qualify for a mortgage anyways, and deposit money indeed qualifies as part of the downpayment.

In summary, when you submit an offer to buy a home, the deposit demonstrates your commitment to the seller to complete the purchase. It also shows that you are comfortable taking on some level of risk by putting down a deposit until the deal closes. That’s why I think size matters.

If you have any questions about deposits or any other real estate matters, feel free to “leave a comment” below and we’ll get in touch.

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