Selling house, deposit scenario question.

[Quick_lude]

Question is this:

we sell the house, the buyer puts down deposit of say 20,000. Closing is end of August. Two weeks before the closing date the buyer backs out for whatever reason. I'm assuming the deposit is not refunded but who gets the 20,000? Is it us or the broker or can that be negotiated somehow? My agent mentioned that the broker gets it all, but I find that hard to believe since we would be stuck with two houses and should be entitled to some if not most of the deposit money, minus brokers expenses. After all they will get their commission once we sell the house again.

[Shaner]

Talk to your lawyer, and once this is all done, find a new broker. No way your agent should be demanding all the money. Since the deal didn't close, I don't think your agent should get a penny. Definitely talk to your real estate lawyer about this.

[coolspot]

I'm pretty sure the buyer get a portion of the deposit if not all theoretically speaking. But generally speaking, the deposit is refunded. Most real estate agents, sellers, etc don't want to deal with the headaches of going to court to justify the seizure of the funds.

[y2jversion1]

Question is this:

we sell the house, the buyer puts down deposit of say 20,000. Closing is end of August. Two weeks before the closing date the buyer backs out for whatever reason. I'm assuming the deposit is not refunded but who gets the 20,000? Is it us or the broker or can that be negotiated somehow? My agent mentioned that the broker gets it all, but I find that hard to believe since we would be stuck with two houses and should be entitled to some if not most of the deposit money, minus brokers expenses. After all they will get their commission once we sell the house again.

Unless otherwise stated in the Agreement of Purchase & Sale, Confirmation of Cooperation, Listing Agreement or any other contract/documentation that was signed with the Brokerage - if the deal falls through before the closing date, the lawyer will approach you how to handle the next steps, which would depend on what negative impact it's had on you financially. The deposit will then be held up until judgement is made as to how the deposit will be handled, ie. if it's ruled that you had X amount of financial loss then you would be entitled to that while the rest should go back to the buyer.

The broker would not "get all".

[rob444]

Once an offer is accepted, and all the conditions are met and waived (i.e. financing, inspection, status certificate etc etc), the deal is FIRM and binding. If after this the buyer decides simply to walk away, they should flat out lose the entire $20K deposit. And that whole amount should go to the seller, since they are the ones most hurt by this as they now have to scramble to get a new buyer. If they were going to use the proceeds from the sale to pay for another house they already bought based on what they thought was a firm sale, the results could be catastrophic to the seller as that deal might then fall through if they don't get a new buyer in time. So definitely 100% of the deposit shoud go right to the seller, and hopefully with that the bank will allow them to get an extended bridge loan until they can sell the house again.

I don't think anything should go to the realtor. They would collect their commission from the next buyer who buys the house.

[canehdianman]

Once an offer is accepted, and all the conditions are met and waived (i.e. financing, inspection, status certificate etc etc), the deal is FIRM and binding. If after this the buyer decides simply to walk away, they should flat out lose the entire $20K deposit. And that whole amount should go to the seller, since they are the ones most hurt by this as they now have to scramble to get a new buyer. If they were going to use the proceeds from the sale to pay for another house they already bought based on what they thought was a firm sale, the results could be catastrophic to the seller as that deal might then fall through if they don't get a new buyer in time. So definitely 100% of the deposit shoud go right to the seller, and hopefully with that the bank will allow them to get an extended bridge loan until they can sell the house again.

I don't think anything should go to the realtor. They would collect their commission from the next buyer who buys the house.

This is correct.

[sherman51]

This is correct.

No it's not!

y2jversion1 has the correct info.

[Quick_lude]

Sorry guys, I suppose I didn't word it correctly, this is a hypothetical scenario, we didn't sign or sell yet, we are selling this weekend though and the agent is coming over tomorrow night to finalize the details, just wanted to be prepared for this possibility before we sign the contract with the agent.


If y2jversion1 is correct, who is the one that will make the determination on how much we will be owed? Do we submit a list of incurred expenses during this time until we sell the house? Things like bridge financing, all the utilities, insurancemn and possibly a lower selling price than the one we got due to a difference in the market and our closing date?

[riz1]

Sorry guys, I suppose I didn't word it correctly, this is a hypothetical scenario, we didn't sign or sell yet, we are selling this weekend though and the agent is coming over tomorrow night to finalize the details, just wanted to be prepared for this possibility before we sign the contract with the agent.


If y2jversion1 is correct, who is the one that will make the determination on how much we will be owed? Do we submit a list of incurred expenses during this time until we sell the house? Things like bridge financing, all the utilities, insurancemn and possibly a lower selling price than the one we got due to a difference in the market and our closing date?


If the scenario ever happens then Sellers are in breach of contract. If the lawyers can't agree to what the resoultion is the courts decide who gets the money based on the losses incurred.

[Adams06]

A neighbour of mine just sold his house and this was one of the things we talked about. I didn't know beforehand that whatever deposit the buyer puts down is not actually yours if they decide to breach contract and walk away, you have to take the matter to court to get that deposit.

As for the house my neighbour bought, it was left on the market because the couple that wanted to buy it last year walked away after waiving all conditions. The owner had to take out a $300k line of credit to purchase his next house out of country, and has continued to pay all bills and mortgage since then. As soon as the sale finalizes, the couple that walked away is being served for $45k, which accounts for all the costs the owner incurred from the date they walked away until the house actually sold.

Even when I was going through my house purchase, we talked to our lawyer about the issue of deposits, walking away from a purchase and breaching the contract. This actually happens quite often and the buyers don't know the consequences of doing so most of the time.

[sherman51]

Sorry guys, I suppose I didn't word it correctly, this is a hypothetical scenario, we didn't sign or sell yet, we are selling this weekend though and the agent is coming over tomorrow night to finalize the details, just wanted to be prepared for this possibility before we sign the contract with the agent.


If y2jversion1 is correct, who is the one that will make the determination on how much we will be owed? Do we submit a list of incurred expenses during this time until we sell the house? Things like bridge financing, all the utilities, insurancemn and possibly a lower selling price than the one we got due to a difference in the market and our closing date?

The deposit remains in trust with the seller's real estate company until the lawyer of the seller directs them on what has to be done with it.
If the buyer backs out of a firm deal, normally the lawyer instructs the seller to put the house back on the market and to honestly attempt to get the same price you got the first time around. If you sell for less (say $10000 less than you sold it before), the lawyers usually work out that the seller is owed $10,000 + any financing costs incurred + utilities, taxes, insurance, moving that may have resulted because of the deal falling apart and then usually the lawyers say to the real estate office what happens to the deposit. Most of the time it still goes to the seller's agent to pay for commission but all the other costs are factored in.
This is why a seller always wants to see a high deposit amount with an offer because it protects them from a buyer simply walking away.
If the deposit doesn't cover all the losses then the seller can try to sue the old buyer for the difference.

This is a typical scenerio but things can pop up to make it come out differently that what I decribed. Those who tell you that you get all that deposit are misimformed.

[rob444]

If the scenario ever happens then Sellers are in breach of contract. If the lawyers can't agree to what the resoultion is the courts decide who gets the money based on the losses incurred.

The actual costs may not be known for weeks or months later. If the seller was expecting to use proceeds of a sale that the buyer walked away from... how can the lawyers agree upfront what the genuine "costs" will be? There will be so many potential costs the seller will need to go through, and it won't be resolved until a new buyer is found and a new firm sale is completed.

Personally, I would demand the entire deposit upfront, and perhaps offer to pay back any money not needed AFTER all the above was completed and true costs known.

Who's responsibility is it to take this to the courts? The seller who has been screwed over, or the buyer walking away?
If the buyer walking away takes it to court, can the seller demand additional payments for court costs/lawyer fees etc?

In the very few cases i have heard of from realtor friends in which buyers have backed out of firm deals, they simply gave up the entire deposit as penalty. I guess in those cases the buyers did not challenge it. However I guess also in some cases common sense does not apply here... in that if you give a deposit for something and back out of the deal... you simply lose the deposit!!

[y2jversion1]

The actual costs may not be known for weeks or months later. If the seller was expecting to use proceeds of a sale that the buyer walked away from... how can the lawyers agree upfront what the genuine "costs" will be? There will be so many potential costs the seller will need to go through, and it won't be resolved until a new buyer is found and a new firm sale is completed.

All are taken into consideration by the judge and doesn't just stay at the lawyer level.



Personally, I would demand the entire deposit upfront, and perhaps offer to pay back any money not needed AFTER all the above was completed and true costs known.

If it can be deemed that you are entitled to the entire deposit due to financial losses incurred by the court, you will receive it.




Who's responsibility is it to take this to the courts? The seller who has been screwed over, or the buyer walking away?
If the buyer walking away takes it to court, can the seller demand additional payments for court costs/lawyer fees etc?

As in most cases (no pun intended), it's usually the party that's screwed who takes it to the courts - hence the Seller. The Seller & their lawyer need to be on the ball and act efficiently.



In the very few cases i have heard of from realtor friends in which buyers have backed out of firm deals, they simply gave up the entire deposit as penalty. I guess in those cases the buyers did not challenge it. However I guess also in some cases common sense does not apply here... in that if you give a deposit for something and back out of the deal... you simply lose the deposit!!

Did your realtor friends specify if they gave up the deposits via judgement or voluntarily? It's very well possible that they can choose to give up a deposit voluntarily if they know they can be screwed in courts for more than the deposit, plus they don't want to have their time & lives tied up in legal court red tape.

Bottom line though, a) the broker doesn't keep it all (as addressed in the OP) and b) the seller isn't automatically entitled to the entire deposit. There is a certain process that needs to be followed, but in some cases, the buyers who breach contract may voluntarily *choose* to forfeit their deposit.

Good luck!

[fieldhousehandyman]

Forfeiting a deposit might have been no big deal when deposits on real estate transactions were modest, in the couple of thousand dollar range. Personally, I have never put down a deposit of more than $2000 on a house (last one was a $2000 deposit on a quarter million dollar purchase).

Obviously, if a potential buyer can't complete a transaction after laying down a twenty grand deposit, there is much more incentive for the buyer to want his deposit back. The potential losses to a seller in a real estate transaction rarely add up to such a significant value, especially in an advancing market, as the home can readily be relisted and sold at the same, or even higher price.

Why anyone would realistically leave more than say a 5 grand deposit is beyond me. In all my knowledge and experience, and that of friends I knw, I have never seen deposits more than one or two percent of the total value of a transaction... but that was before the days of the ridiculously overvalued Canadian market.

In answer to the question, the deposit can only be released after the approval of both parties (buyer and seller) via instructions to their respective lawyers. If no agreement is reached with respect to releasing the deposit, the matter will then be taken before the courts for judgment... The deposit is held in a trust account until instructions for disbursement (generally following the succesful closing of the transaction of course) are met.

Read Y2jversions post above, with factual information.

The deposit is not the sellers money, ever, until closing the sale, or buyer agrees to release to seller (voluntarily, or forced via court judgement)

[rob444]

Did your realtor friends specify if they gave up the deposits via judgement or voluntarily? It's very well possible that they can choose to give up a deposit voluntarily if they know they can be screwed in courts for more than the deposit, plus they don't want to have their time & lives tied up in legal court red tape.

Yes, in the 2 specific cases i heard of, it was given up voluntarily and never went past the RE lawyers. The seller who got screwed over used the deposit for bridge financing/carrying 2 mortgages for a while/inconvenience & hassle of putting house on market again. Most likely the sellers agreed not to persue further legal action in these cases.... which could be typical if the home was in a high demand area and confident a new seller could be found quickly. Also i beleive the deposits in these cases were between $5K - $10K.

I had always assumed that at a minimum the seller would get the full deposit, and there wasn't much the buyer walking away could do about it. Thanks for the clarifications!

[Quick_lude]

Forfeiting a deposit might have been no big deal when deposits on real estate transactions were modest, in the couple of thousand dollar range. Personally, I have never put down a deposit of more than $2000 on a house (last one was a $2000 deposit on a quarter million dollar purchase).

Why anyone would realistically leave more than say a 5 grand deposit is beyond me. In all my knowledge and experience, and that of friends I knw, I have never seen deposits more than one or two percent of the total value of a transaction... but that was before the days of the ridiculously overvalued Canadian market.



Our house will list for $529K. If we got an offer with a $2-5K deposit, we would laugh and throw it in the garbage. 4-5% is the norm in the GTA I believe. An offer with such a deposit indicates the buyers are serious and it's a big enough deposit to cover the extra expenses/losses that we will incurr if the buyer backs out.

[riz1]

Our house will list for $529K. If we got an offer with a $2-5K deposit, we would laugh and throw it in the garbage. 4-5% is the norm in the GTA I believe. An offer with such a deposit indicates the buyers are serious and it's a big enough deposit to cover the extra expenses/losses that we will incurr if the buyer backs out.

In GTA for a house with $529K we don't accept anything less than $20K and even with a home at $150K I would not accept anything less than $10K

[licenced]

The broker(age) is entitled to zero. Nothing, not even a dime.

The deposit would be held in trust either with the brokerage or wherever the agreement directs it be first deposited until either the seller and buyer agree (with the brokerages' sign-off) to release the funds back to the buyer. If that does not happen it becomes a litigation issue and it does not happen if the seller goes after the deposit for damages.

The brokerage is only ever entitled to commission on a sale if after it is firm, their client fails to close and with this it is still has to be litigated against the client.

Rob444 is quite correct.

Question is this:

My agent mentioned that the broker gets it all, but I find that hard to believe since we would be stuck with two houses and should be entitled to some if not most of the deposit money, minus brokers expenses. After all they will get their commission once we sell the house again.

[rob444]

and it's a big enough deposit to cover the extra expenses/losses that we will incurr if the buyer backs out.

Be careful here though. As was explained in previous posts, if the buyer thinks the deposit is higher than your actual expenses will be if they walk away from the deal last minute... they can take you to court to recover a portion of the deposit.

No matter if they are successful or not, it could tie up the deposit so you don't actually see a penny of it until a judge has ruled (which could take months i assume).

I guess this is a risk that every single person takes when selling a house though, and really no way around it unless it's worded right into the contract that buyer will forfeit 100% of deposit immediately if contract is broken.

[Meowiejuie]

In GTA for a house with $529K we don't accept anything less than $20K and even with a home at $150K I would not accept anything less than $10K

+1

When we sold our home last month, our RE agent was seeking at least 20K deposit from the buyer.. Anything less raises a red flag..
This in on a 500K home.

[Quick_lude]

Be careful here though. As was explained in previous posts, if the buyer thinks the deposit is higher than your actual expenses will be if they walk away from the deal last minute... they can take you to court to recover a portion of the deposit.

No matter if they are successful or not, it could tie up the deposit so you don't actually see a penny of it until a judge has ruled (which could take months i assume).

I guess this is a risk that every single person takes when selling a house though, and really no way around it unless it's worded right into the contract that buyer will forfeit 100% of deposit immediately if contract is broken.
We're not greedy, we would only want enough money to cover our expenses and costs, the rest they can fight over with the broker.

[Shaner]

+1

When we sold our home last month, our RE agent was seeking at least 20K deposit from the buyer.. Anything less raises a red flag..
This in on a 500K home.

Wow, when I bought my house we put a deposit of $500 down. My agent told me that was a typical deposit. Then again, there are rarely multiple offers here, so sellers are willing to jump through hoops as long as the offer is right.

[sprdave]

When I sold a city lot that I decided not to build on, the buyer backed out the day of closing. Like an hour after finding out from my lawyer, the agent found a buyer for that same day at the same price...All I had to do was stop by the lawyer again to resign some papers for the new buyer, and I got the 100% deposit as a bonus :) I didn't request it either

[y2jversion1]

In GTA its not uncommon for 15-30k deposits. For 900k+ properties, 5% (45k) are also quite common.

[fieldhousehandyman]

I suppose in a sellers market deposits increase significantly. I have only purchased in a neutral or declining markets, and generally presented offers with few condition and with consequently small deposits (1000 on a 110k purchase, 500 on a 120k purchase, and 2000 on a 250k purchase). I guess large deposits presents a bit of a conundrum, the larger they are, the more likely a buyer will try to recoup the deposit if they fail to complete the purchase.

[licenced]

As a seller, that's all you'll be entitled to - your losses. Any excess will be returned to the buyer. The brokerage is not entitled to any of the deposit money as it was a stipulated arrangement between buyer and seller, not buyer and any brokerage.

The buyer's brokerage has to sue independently to recover any costs, the seller's brokerage is not so entitled to any of the deposit.

Seek proper clarification from your REALTOR and if they tell you otherwise then think twice about what they do not know.

We're not greedy, we would only want enough money to cover our expenses and costs, the rest they can fight over with the broker.

[licenced]

Fieldhouse it depends on the area. Small deposits are common in more rural areas or smaller towns. Sometimes out of town REALTORS placing offers on behalf of their clients are shocked to learn that $5,000 meets with an immediate rejection in most of the GTA.

I suppose in a sellers market deposits increase significantly. I have only purchased in a neutral or declining markets, and generally presented offers with few condition and with consequently small deposits (1000 on a 110k purchase, 500 on a 120k purchase, and 2000 on a 250k purchase). I guess large deposits presents a bit of a conundrum, the larger they are, the more likely a buyer will try to recoup the deposit if they fail to complete the purchase.

[Busybuyer888]

I had a chance to talk to a two knowledgable Toronto lawyers regarding this issue recently.

They both said, if the offer was firm and there were no deposit instructions in the agreement, then the buyer would lose the deposit. (Not automatically, but in due course.)

They both said the reason was the buyer was the one that breached the contract. (One lawyer was a trial lawyer.)

I queried them regarding only compensating upto actually loses by the seller ... they both said no, that is not the standard in Ontario RE.

I then had a chance to double check with a broker. They also said, the buyer would likely lose the deposit. However, the selling broker (holding the deposit) would not release any deposits held unless they had a signed agreement/instruction from both the seller/buyer (or a legal judgement). (From fear of being sued by either party.)

The fine point is the selling broker will not release the deposit unless there was a signed agreement/judgement. So the seller would win 100% of the deposit in court. However, we know that it will cost money to go to court. (In Toronto, $60K deposits are VERY common, so small claims court is out of the question.)

So both seller & buyer have an interest to come to an agreement regarding the deposit - otherwise the money sits with the selling brokerage forever. (And to avoid legal fees fighting over the deposit.)

[coolspot]

Wow, when I bought my house we put a deposit of $500 down. My agent told me that was a typical deposit. Then again, there are rarely multiple offers here, so sellers are willing to jump through hoops as long as the offer is right.

How long ago was that? Minimum I've seen was 10K, but 20K or more is pretty standard.

[Busybuyer888]

A deposit of $1 is legally okay for an agreement, it is a legally binding agreement.

The lower the deposit, the less skin the buyer has in the transaction, unless the seller is prepared to take the buyer to court to enforce the agreement/collect damages.

$500 ... isn't that what car dealers ask for a deposit for a $15K Corolla? (Also, to be fair, $5,000 is a lot of money in rural Canada, where a home may only be worth $40K.)

[Shaner]

How long ago was that? Minimum I've seen was 10K, but 20K or more is pretty standard.

This was 1 year ago. Out here, $500 is the normal deposit amount. We don't get multiple offers out here so a seller can't turn down an offer because the deposit is too small, otherwise they'll never sell their house. I also had a long list of conditions on my offer, also something that is the norm out here.

[FastFret]

I had a chance to talk to a two knowledgable Toronto lawyers regarding this issue recently.

They both said, if the offer was firm and there were no deposit instructions in the agreement, then the buyer would lose the deposit. (Not automatically, but in due course.)

They both said the reason was the buyer was the one that breached the contract. (One lawyer was a trial lawyer.)

I queried them regarding only compensating upto actually loses by the seller ... they both said no, that is not the standard in Ontario RE.

I then had a chance to double check with a broker. They also said, the buyer would likely lose the deposit. However, the selling broker (holding the deposit) would not release any deposits held unless they had a signed agreement/instruction from both the seller/buyer (or a legal judgement). (From fear of being sued by either party.)

The fine point is the selling broker will not release the deposit unless there was a signed agreement/judgement. So the seller would win 100% of the deposit in court. However, we know that it will cost money to go to court. (In Toronto, $60K deposits are VERY common, so small claims court is out of the question.)

So both seller & buyer have an interest to come to an agreement regarding the deposit - otherwise the money sits with the selling brokerage forever. (And to avoid legal fees fighting over the deposit.)

I wonder, can the seller continue searching for another buyer while this is occurring? I'm thinking not, judgment comes first, the agreement of purchase gets voided and the property gets released for a new sale...

[rob444]

I wonder, can the seller continue searching for another buyer while this is occurring? I'm thinking not, judgment comes first, the agreement of purchase gets voided and the property gets released for a new sale...

Absolutely they would immediately start looking for a new buyer. There is no debate on the contract being broken, that would be confirmed which would free the seller to put the house back on the market right away.

The area for possible court requirements, is if a decision can't be reached on the deposit money. Does it all get released to the seller? Does the buyer claim it goes over and above the sellers actual expenses so will demand some back? If no agreement, the entire depost amount is placed in limbo until the courts get to it.

No matter who wins in the end, this could seriously hurt a seller who has perhaps already purchased a new property under assumption of this sale. With no more buyer, the bank could easily just back out the deal meaning the seller may then default on the home they were going to buy.... and the cycle continues down the line. In the end the buyer walking away could screw over so many people, they are looking at multiple possible lawsuits.

This is why I have no idea why they can't word something into the contracts for big deposits like "in case buyer cancels this firm and binding contract after all conditions have been waived, buyer agrees to release entire depost amount to seller immediately"... or perhaps "buyer agrees to release $10,000 of deposit immediately with the remainder amount to be negotiated"

[Busybuyer888]

I wonder, can the seller continue searching for another buyer while this is occurring? I'm thinking not, judgment comes first, the agreement of purchase gets voided and the property gets released for a new sale...

It was explained to me that as soon as the buyer breached the agreement by not closing the deal - the seller has 100% control of the situation. The buyer breached the agreement and will be subjected to penalties. (And additional liablities through the courts, should the seller's losses exceed the deposit.)

The seller could sell the property/sign another agreement the day after the buyer refuses to close. (Lawyers also indicated, the buyer is also open to lawsuits from the real estate agent/broker for lost commissions because the the agents did their job in selling the house. RE Agents would need to be real bad people to do this, and willing to spend legal fees.)

The fact that the seller could or eventually could sell the house again for even more money has no impact on the deposit on the 1st agreement. The seller is entitled to the full deposit. The lawyers explained to me it is very hard for a buyer to recover any of the deposit if it went to court. (And add legal fees of maybe $25K on top of it.)

This was a surprise to me when I was told this.