Q - I'm almost ready to make an offer on a beautiful home and our agent told me to make a substantial deposit to show my serious intent. Is that really necessary and if the purchase does not materialize, how do I get my deposit back?
A - It is not necessary to make any deposit for the contract to be valid. However, it is always reassuring for the seller when a deposit is provided. As your agent indicated, it does show 'serious intent' and demonstrates a greater financial ability to purchase than someone who can't manage to put together a deposit. As for a 'substantial' deposit, that really depends on the financial size of the purchase and what one might consider to be 'substantial. A guideline you might use is 5% of the purchase price. Again, I must emphasize, that is your decision.
Should you find the property lacking in some way because of a home inspection, a Mutual Release has to be signed by the sellers and buyers, for the money to be returned. The real estate company holds the deposit as a stakeholder - meaning it does not hold the money on behalf of any of the parties. Therefore, the real estate firm requires this paperwork to release the deposit from its trust account. If either party doesn't sign the Mutual Release, then the parties have to apply to the court for a determination of the deposit issue.
The majority of the time, both parties do sign the Mutual Release and if one of them is reluctant to do so, an explanation of the next step in the process generally persuades them to do so. Courts tend to favour the buyer in such situations if the buyer has a legitimate reason for backing out of the purchase.
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