Most agreements of purchase and sale have a number of elements in them—
A (small) deposit which is credited on completion
A down-payment (added to the deposit) on completion
A mortgage in 1st place from a major lender
And sometimes a 2nd mortgage seller take back from the seller or a 2nd mortgage from a private source or a 2nd mortgage from a self-directed RRSP
I try to keep deposits small (see below) because there can be a problem getting them refunded in case a deal goes sideways. Sellers can refuse to sign a mutual release and termination simply “Because they feel like it,” in which case, the buyer’s deposit is stuck in the listing realtor’s trust account until they do sign it or until litigation decides the matter, which can often be more costly for the buyer than the deposit amount anyway… it’s complicated.
I’d even put down a $2 deposit if I could, but most sellers won’t agree to that—they not only want more $$$ as a deposit, they also want it to go to their realtor’s agency (or their lawyer’s trust account).
Maybe you could get away with $2,500 on your deals?
The other reason a deposit is required is because under common law, a legally binding agreement must have 3 elements—
And they must be in that order, otherwise no dice!
There’s a famous story—goes like this:
A guy is walking along the banks of a river and he sees a chap drowning.
“Help me! Help me!” cries the drowning man.
So, the guy hauls him out of the river.
“Thank you, thank you so much! You saved my life! I’m going to give you a $1,000!”
Wow, thinks the guy, I could sure use that 1,000 bucks.
The guy goes home and waits for his $1,000. And waits.
After six weeks, no money. He calls the chap he pulled out of the river who say, “Oh that. I was just kidding. LOL.”
Now, our guy is mad, so he sees an attorney who tells him that because the consideration (the offer of $1,000 reward) came after offer was proffered and the service was provided, it’s not legal binding! The lawyer adds, “Next time, ask the drowning man if he’ll give you a $1,000 before you haul him out. That way you have a legally binding deal.”
Now obviously no good Samaritan WOULD EVER DO SUCH A THING. In fact, in France their Good Samaritan legislation prohibits this type of thing and requires that you provide aid.
FOR REAL ESTATE INVESTMENT AND BUSINESS COACHING THAT’LL HELP YOU PROVIDE FOR YOURSELF AND YOUR FAMILY FOR 3-GENERATIONS, PLEASE CONTACT:
Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD
Real Estate Investment and Business coach
ROYAL LePAGE Performance Realty broker
Ottawa Senators founder
• MAKING IMPOSSIBLE POSSIBLE
• FREEDOM VIA REAL ESTATE INVESTMENT AND PB4L, PERSONAL BUSINESS FOR LIFE
• FEHAJ, FOR EVERY HOME A JOB
• MAKE YOUR HOME WORK FOR YOU, INSTEAD OF YOU WORKING FOR IT
• HIGHER ROI NOT JUST FOR OWNERS AND INVESTORS, BUT FOR TENANTS, GUESTS, VISITORS, NEIGHBORHOODS, COMMUNITIES, TOWNS, VILLAGES, CITIES AND THE ENVIRONMENT TOO
Image source: By US Army – https://media.defense.gov/2017/Apr/11/2001730347/-1/-1/0/170411-A-QY194-001.JPG, Public Domain, https://commons.wikimedia.org/w/index.php?curid=61824768