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Why are Deposits so important in Real Estate Transactions?

Blog by Robin Lear | March 27th, 2014

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I remember about 15 years ago writing a deposit cheque for all of $1000.00 buying a home in Winnipeg, that was rich.  Some realtors will tell you that as long as there is 'consideration', the fancy term for a deposit, or some form of legal tender in and around the contract then you can have a contract.  While relatively true, nobody in their right mind will accept a deposit on a HOME in Calgary for $1000.00 in fact, most brokerage policies are such, that they simply don't allow it.  So what does a deposit represent, well in Real Estate in Calgary there is an unofficial benchmark deposit level that did peak when the market peaked in 2006 and 2007.  The deposit represents the minimum amount that a buyer will forfeit, in the event that they waived all their conditions, then decided to move to Cuba the following day, PLUS of course it doesn't preclude the seller from Suing for demonstrable damages. That's the simplified version.  Sellers will always want to see a BIGGER deposit representing SECURITY , in the event that the CUBA relocation seems attractive in all this SNOW.  It isn't in the sellers best interests to accept a lower deposit, as we've seen in Calgary people will in fact walk-away from a 5 or 10k deposit rather than closing on a 450-475k deal, sometimes that is the cheaper route.  I saw one time a buyer was prepared to walk away from a $75,000 deposit on a bigger transaction, and of course it was the cheaper option.  Oftentimes, if a buyer doesn't have CASH, they can obtain a Line of Credit from the bank secured or unsecured, just talk to your neighbourhood Banker for further details.