I have come across many people who don?t know what is meant by ?Deposit? They simply do not understand the term and 9 times out of 10 confuse it with a ?Down Payment?.
My definition of a ?Deposit? is: An amount of money which will be written into the Contract of Purchase and Sale (in a lot of cases is $1,000) to indicate that the Buyer is serious about the offer that he/she has written. This deposit will be put towards the purchase price of the transaction. If for unknown reasons the Buyer can not remove subject conditions the deposit, upon the successful signing of a ?Release of Trust Funds? by both the Buyer and Seller will be returned back to the Buyer.
The Following are some formal definitions of a deposit.
DEPOSIT(S): Section 28 of the Real Estate Services Act requires that money held by a brokerage in respect of a real estate transaction for which there is an agreement between the parties for the acquisition and disposition of the real estate be held by the brokerage as a stakeholder. The money is held for the real estate transaction and not on behalf of one of the parties. If a party does not remove a subject clause, the brokerage requires the written agreement of both parties in order to release the deposit. If both parties do not sign the agreement to release the deposit, then the parties will have to apply to court for a determination of the deposit issue.
DEPOSIT: A deposit of $ which will form part of the Purchase Price, will be paid on the following terms:
All monies paid pursuant to this section (Deposit) will be delivered in trust to (usually the Real Estate Co. and held in trust in accordance with the provisions of the Real Estate Services Act. In the event the Buyer fails to pay the Deposit as required by this Contract, the Seller may, at the Seller?s option, terminate this Contract. The party who receives the Deposit is authorized to pay all or any portion of the Deposit to the Buyer?s or Seller?s conveyancer (the ?Conveyancer?) without further written direction of the Buyer or Seller, provided that: (a) the Conveyancer is a Lawyer or Notary; (b) such money is to be held in trust by the Conveyancer as stakeholder pursuant to the provisions of the Real Estate Services Act pending the completion of the transaction and not on behalf of any of the principals to the transaction; and (c) if the sale does not complete, the money should be returned to such party as stakeholder or paid into Court.
Need for a Deposit: Contract law does not require that there be a deposit in order to create a binding Contract of Purchase and Sale. The requirement that a contract include some form of consideration is satisfied by the mutual exchange of promises by the Seller and the Buyer. However, it has long been recognized that including a deposit, often an amount between 5% and 10% of the offered price, represents and expression of the serious intention of the Buyer.
Some consumers, and perhaps even some Realtors, are under the misconception that a Contract of Purchase and Sale is not binding on the parties until all subjects have been removed. The obligations under a contract are created once there has been an offer and acceptance (including counter-offers). Some Buyers believe that not including a deposit makes it easier for them to not proceed, if they choose, with their obligations under the agreement.
Buyers? agents need to be cautious that buyers do not assume that, by not providing an initial deposit, they have somehow diminished their responsibility to make best efforts to satisfy the terms and conditions of the contract and to remove subject clauses.
Return of Deposits after Acceptance: Both contract law and the Real Estate Services Act govern the return of a deposit where an offer or counter-offer has been accepted and the subject clauses are subsequently not removed. Contract Law: If the offer or counter-offer is not accepted and there is no contract, the deposit may be returned to the Buyer without the consent of the Seller. If, however, the offer or counter-offer is accepted and the subject clause(s) is (are) not removed, then contract law asks the question ?What did the parties to the contract intend would happen if the subject clause(s) is (are) not removed??
Real Estate Services Act: Unless otherwise expressly agreed to in writing, a brokerage who receives money in respect of a trade in real estate holds the money as a stakeholder and not as an agent for the Buyer or Seller. Therefore, when a subject clause is not removed, the brokerage must obtain a separate written release containing the consent of the Buyer and the Seller to release the deposit.
It is the obligation of the benefiting party to use his or her best efforts to remove the subject clause. If he or she does not do so, the other party may have a legal argument that the benefiting party did not use his or her best efforts.
Do you have a question? Feel free to ask, submit questions to B.C. Force Connecting Buyers and Sellers in writing to Brenda Banham RE/MAX Dawson Creek Realty:
e-mail firstname.lastname@example.org fax: 250-242-3256 or mail Box 1769 Tumbler Ridge, BC V0C 2W0 OR Claudette M.M. Huber RE/MAX Dawson Creek Realty: e-mail email@example.com fax: 250-242-4410 or mail Box 2106 Tumbler Ridge, BC V0C 2W0