In real estate, a deposit serves two purposes: Provides security to the Seller; and a deposit ensures that the Buyer has a stake in the agreement.
The deposit is good faith that is put down by the buyer once you have a successful agreement in sale. This amount is put towards your down payment and closing costs.
What is a deposit in real estate and when is it due?
Unless otherwise stated the deposit is due within 24 hours of the accepted offer. This means 24 hours and not one business day. Therefore, if you enter into an agreement at 11am on Monday, the deposit is due by 10:59am on Tuesday.
How much of a deposit should I provide and who is it made out to?
In the Greater Toronto Area (GTA), the deposit is typically 5% of the purchase price.
However, keep in mind that there is no specific amount required by law. In most cases, the deposit is held by the listing brokerage trust account such as the Royal LePage Supreme Realty.
Trust accounts are highly regulated and routinely audited. Deposit money held in trust cannot be used to pay the brokerage’s expenses (salaries, rent, etc.).
What happens to your deposit on closing and can I use RRSP’s?
The deposit forms part of your down payment and towards your closing costs.
You can definitely use your RRSP’s for the down payment. There is a program that can be used in order to access your RRSP’s which is called the Home Buyers Plan (HBP). This plan allows you to withdraw up to $35,000. Before applying to withdraw funds under the HBP, make sure to check your eligibility.
To learn more about the HBP and how it works, click here.
If you are looking to purchase a home and have questions around deposits, don’t hesitate to contact me as I would be happy to help.