As you have likely come to realize, Real Estate is a dollars and cents transaction. Therefore the deposit on the transaction is an important part of the offer. When do you need to provide the money for the deposit? What happens to the deposit money? How much money should the deposit be?
A deposit is money paid in good faith to assure the performance of the Real Estate contract (otherwise know as an Agreement of Purchase and Sale). It works much like department store layaway. You put money into a trust account until the transaction is completed. It is applied to the balance of the purchase price at closing.
The deposit is payable either with the presentation of the offer to purchase a home, or upon the acceptance of the offer. That means the deposit amount that is agreed upon needs to be supplied immediately upon acceptance of the agreement.
Usually the deposit money is held in a trust account until closing. In the event of a private sale usually a lawyer will hold the money in trust. If you are using a Realtor the Brokerage they work for will hold the funds in trust until closing. When the property closes the money that was in trust will be applied to the outstanding balance of the purchase price, and fees associated with your portion of the sales transaction.
Finally the amount of the deposit is negotiable, and can be any amount agreeable to both parties. I usually recommend 2% of the purchase price be placed in trust as a deposit for the sale. For instance on a $200,000.00 home I would recommend a $4000.00 deposit. This ties the individual to the sale and shows a commitment to the purchase of the home.
Without a substantial deposit vendors can find themselves in a precarious situation. If the deposit is too small then there is a minimal risk to walking away from the transaction. With a larger deposit the buyer is announcing a substantial commitment to the sale of the home, and a vendor may feel more confident about the transaction closing.
