How Much Should My Deposit Be?

A buyer and seller may wonder how much the deposit should be on a residential offer to purchase. They have opposite interests when determining this amount. A compromise must be reached between them. The most common range is currently between $2,000.00 and $10,000.00 however the deposit can be larger or smaller. I strongly recommend against anything less. I prefer to see a deposit of a minimum of $5,000.00 although I realize not everyone has that amount available. A more expensive home is more likely to justify a larger deposit than a modest home. Here are some things to keep in mind:

The Seller's Perspective

The seller should ask for the deposit to be as large as possible. Even $5,000.00 may be insufficient. If the buyer later refuses to complete the transaction, the seller's recourse is probably only against the deposit. While there is some conflict amongst the cases, current case law in Saskatchewan suggests that in most situations (there can be some exceptions), the seller cannot sue the defaulting buyer for for failure to complete a purchase transaction if the action is effectively an attempt to enforce the buyer's promise to pay the purchase price. While someone may decide one day to take this issue all the way to the Court of Appeal or higher, ligitation on this issue would be very expensive and time consuming. Practically, therefore, the deposit should be large enough to compensate the seller and induce the buyer to complete the purchase. If prices are falling or if it will take a long time to find a replacement buyer, the amount of any deposit can prove to be inadequate to cover the seller's actual loss.

The Buyer's Perspective

The buyer wants the deposit to be as small as possible. In all but the most unusual of cases, the buyer intends to complete the purchase. Why would they go to all the trouble of viewing a property, making an offer and paying a deposit if they had no intention to close their purchase? On the other hand, what if something unforseen happened such as an unexpected job transfer to another city or province? This could unexpectedly force them to not complete the purchase and lose their deposit.

Increasing a Deposit after Conditions are Met

Another possibility is to indicate that the deposit will start at one amount and will be increased by an additional amount after the conditions under the offer have been met or removed. Most residential offers do not provide for this but it still happens sometimes.

Make the Deposit Cheque Payable to the Seller's Lawyer

In fairness to the buyer, the deposit cheque should be made out to the seller's lawyer rather than the sellers personally. Most sellers are honest and will refund a deposit if the conditions, such as financing or approval of a property inspection, are not met. However, I have seen situations where the money was already spent and the seller could not provide the refund. A vendor may also wrongly refuse to refund a deposit so again a purchaser is often better off if the deposit is held at a law office. If you are using me as your lawyer, the deposit cheque should be payable to my law office, Cuelenaere Kendall. We will place it in our trust account.

Cashing the Deposit Cheque

The deposit cheque is intended to be cashed right away. It should not be held uncashed until all the conditions are met or until closing. Otherwise if the buyer changes his or her mind (unlikely but possible) they might stop payment on the cheque. In the meantime, the seller will have turned away other possible buyers of the property.

If the deposit cheque is being paid very close to the closing date, it should be certified. Otherwise no one will know if it will actually clear the bank. Even though cheques that are good generally will clear quickly, it often takes a week after deposit to discover that a cheque has been returned NSF or has been stopped.

Follow Up to Remove Conditions

Your offer to purchase will probably have conditions in it. Most offers say that the deposit will be returned if the conditions are not met by a given date. The Seller and the Buyer must both follow up diligently and communicate with each other to ensure conditions are being met. If they are not met, the deposit must usually be returned. Get the conditions removed in writing by the deadlines. If both sides agree that more time should be allowed to meet the conditions, set it out clearly in writing. Don't just extend dates verbally or you may be facing a dispute later on. Don't let the deadlines go by without addressing these issues in writing. If you have a realtor, they will help you with this. If you do not have a realtor, this is the responsibility of the buyer and the seller to work on together. Don't take these responsibilities lightly. Many disputes happen because neither side was following up in a timely manner and then one or the other is disappointed when they find out much later that a condition was not met.

Disputes Over Deposits

If there is a dispute over the deposit, you may have to take it to Small Claims Court.