Purpose of Deposits

2007/08/07 Originally published in the Vernon Morning Star.

It is customary to tender a deposit when making an offer to buy real estate. Usually within 24 hours of acceptance of the offer, all or part of the deposit is collected from the buyer and placed in a trust account. Most often it is the real estate company who is representing the buyer who places the buyers' deposit into their trust account. Occasionally, there are some special circumstances and the deposit is placed in the buyers or sellers lawyers trust account. In all scenarios, the buyer can only take their deposit back with the written permission of the seller.

But, why is the deposit important? It used to be that it was necessary to show what is legally called "consideration." Even the sum of $1.00 was considered necessary to make a contract binding. This has not been the case for many years. Consideration has evolved to be simply that the parties are both receiving some benefit by entering into the contract. Those benefits can be defined by the sellers' expectation of receiving money and the buyers' expectation of receiving ownership of the property.

So "consideration" is not the main point of the deposit.

The deposit is intended to demonstrate the good faith of the buyer. It is felt that buyers would not tender deposits unless they are seriously interested in contracting to buy the property. Americans call deposit monies "earnest monies" - very appropriate words. That is exactly why we care about deposits and about the amount of deposits. The higher the deposit, the more peace of mind the seller has.

The deposit is normally returned to the buyer if they are unable to remove their subject clauses. Examples of this would be subject to financing or subject to satisfactory home inspection. But when in those cases, both the sellers and buyers signatures are required when releasing deposit monies back to the buyer. In the case of the seller refusing to sign the deposit release form, the money is forthwith paid into court and a judge will decide the fate of the deposit monies. This is extremely rare. As long as the buyer has made sincere and reasonable efforts to remove their conditions, there are typically very few problems with the return of deposits.

Jane Field works with RE/MAX Vernon. Jane has over 30 years experience in the Real Estate business. To suggest topics for future articles or to ask Jane questions, email or call 503-3755.

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