A deposit cheque is not required for a Contract of Purchase and Sale to be legally binding. The deposit is simply an act of good faith from the Buyer demonstrating his/her intention to honour the terms of the contract. Having said that, every real estate transaction I’ve been involved with has included a deposit. Excluding a deposit would make most Seller’s weary of your offer and would almost certainly eliminate you in a multiple-offer situation. Here are some other things you should understand about deposit cheques:
When is it paid ?
The cheque is normally provided upon final subject removal which is typically 7 days after the accepted offer. If there are no subjects you would be expected to provide it within 24 hours of the accepted offer. If you are in a competitive, multiple-offer situation you could provide the deposit cheque with your offer (assuming you have no subjects).
How much is it ?
Approximately 5% of the purchase price.
Can it be a personal cheque ?
The deposit should be in the form of a bank draft or certified cheque.
What happens to my deposit if I don’t complete on the purchase ?
It depends. If you decide not to complete on the purchase and the Seller is able to quickly secure another offer on equal or better terms then you may receive your full deposit back. If, however, the Seller does not receive a timely offer at or above your accepted price you may loose some or all of your deposit. If the Seller has purchased another property and is relying on the proceeds of the sale to finance the subsequent purchase, things get very complicated and lawyers will likely be involved. Bottom line – do not remove subjects and provide a deposit unless you are certain you want to move forward with the purchase.