When making an offer on a house, a buyer gives a deposit to secure their offer. Your deposit is given as a certified cheque or bank draft, is held in trust by the selling brokerage, and goes toward your down payment.
Deposit amounts tend to have regional norms. In markets like the Greater Toronto Area and Great Vancouver Area, as examples, 5% is typical, to ensure you secure the home you want. In other, less competitive regions, deposits vary: Ottawa is between 1% and 2%, whereas Sudbury in northern Ontario and St. John’s, Newfoundland are both typically $1000.
Your best course of action is to ask your agent, as they’ll know trends and expectations, so you are prepared to make an acceptable offer.
You can submit your deposit at two different times: the day after the seller accepts your offer or at the time of making the offer.
Most deposits are given upon acceptance, meaning when the seller chooses your offer. Your deposit must be submitted to the seller’s agent within a discussed period of time—usually within 24 hours of acceptance. It’s best to have your funds accessible well before you submit your offer, so you can have your deposit ready to give in the required timeframe.
If you’re expecting to participate in a bidding war, where multiple bids are submitted for the same home, you may want to give a deposit with your offer to strengthen it, called herewith. In a hot market, especially for a desired property, it’s very common to give a substantial deposit up front. A strong deposit is attractive to the seller because it shows you’re serious and shouldn’t have any problems securing the required mortgage.
Once an offer has been accepted and the deposit has been given, it can be tricky to get it back should either party back out of the deal.
The best option is for the party who’s backing out to give a mutual release form. In this case, both parties would agree to sign the release, giving the buyer back their deposit in full, or an agreed upon amount. Mutual releases are most common while the deal is still conditional, when one of the conditions is not met. Once the deal has firmed up, cancelling the contract is legally breaking it and you should seek legal advice.
If either party doesn’t agree upon the mutual release, or a settlement amount to break the contract, the situation could go to court. If the buyer gets cold feet and backs out after the offer has been accepted, the seller can sue for damages, such as if they went on to sell the home to another buyer for a lesser amount, for the difference between the first and second sale prices.