Last Updated on April 4, 2024

Is a Real Estate Deposit Refundable? | Real Estate Question

By Alan F Macdonald

Is a Real Estate Deposit Refundable? | Real Estate Question

Short answer:


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    Long Answer:

    I haven’t had a time where my buyer didn’t get their deposit back, but a deposit can be lost in one certain circumstances. There are three different ways this can go:

    Buyer Walks Away From Contract That Has Conditions

    This is a situation that happens fairly often. You make an offer and it gets accepted, but something isn’t right. Either you don’t get financing approved, or you aren’t happy with what you see in an inspection or the condominium documents, Anything you have as a condition is there for a reason – to protect you from buying the wrong property. In this case the contract expires with no removal of conditions and the deposit is refunded to the buyer – usually by the seller’s brokerage.

    Buyer Walks Away From Contract With No Conditions

    You can get an unconditional contract in one of two ways. You can start with no conditions or you can remove them later on. Either way, your deposit is not coming back to you. It’s going towards the purchase of a property, or it’s going to get lost. In the contract you have agreed to give this money in good faith that you intend to purchase this property. If you walk away at the last minute, you’re going to lose your deposit. This is not a good situation and that’s why you never remove conditions unless you are sure that you are OK to purchase that property. You need to be ok with financing and an inspection and review of condo documents or whatever else you need to know before signing off on an unconditional contract. And it should be noted that it is possible to have a bigger legal issue with not proceeding with a purchase contract. Remember you agreed to buy something and walked away. The seller may choose to try to force you to buy this property. Do not get yourself in this situation.

    Buyer Completes The Sale

    This is the one where you buy the property. In this case your deposit is not ‘lost’, but you don’t get it back either. You may have started with a conditional contract or an unconditional one – the point is moot now. This deposit will become part of your downpayment. Say you give a $10,000 deposit and your downpayment is $50,000. That deposit is going to go from the seller’s brokerage to your lawyer to be transferred to the seller’s lawyer and then to wherever it needs to go from there. Maybe to the seller, maybe to the seller’s lender. Who knows. But since you put a $10,000 deposit down when you bring your bank draft to your lawyer to sign paperwork, you only need to bring $40,000 now. Remember the total down payment is $50,000 and you already have $10,000 in the system.

    For more information on deposit amounts see: How Much Should A Deposit Be For A Purchase?


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