Real Estate Deposits

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Deposits and down payments
When an offer to purchase is made, the purchaser usually gives the seller a deposit toward the purchase price. The deposit assures the seller that you are serious about the purchase and intend to complete the deal if the offer is accepted.

The term “deposit” should not be confused with the term “down payment ” as they are not the same thing. A down payment includes the amount paid as a deposit. A down payment is the total of all the money paid by the purchaser up-to the value of the mortgage. Together, a down payment and the mortgage amount will equal the purchase price. Usually, the deposit is paid by the purchaser at the time the offer is made. The remaining amount of the down payment and the mortgage amount are paid to the seller on closing.
Deposits for re-sale properties
Deposits for re-sale properties can be in any amount, although deposits from 2% to 10% of the purchase price are typical. An offer with a higher deposit may be viewed as more attractive by a seller than one with a small deposit.

Although the deposit will be credited to the purchase price and deducted from the amount due on closing, it is not normally paid directly to the seller. In most cases, deposits are made payable to the listing agent “in trust.” This will require the listing agent to keep the money in a trust account until the closing date. Once the deposit has been credited to the purchase price on closing, the seller will usually authorize the agent to deduct their sales commission from the deposit.
Deposits for new homes (PRE SALES)

For new homes, the deposit is usually payable directly to the builder, and held “in trust” by the builder’s lawyer. Builders who are selling “pre-construction” homes may also require higher deposits than normally paid for re-sale properties. This allows the builder to use the money toward ongoing construction costs.

A presale is when a condo developer sells the suites of the development before it has been completely built and often before construction has even begun. You, the buyer, purchase the right to the future property. While ultimately you are responsible for paying the full purchase price, you do not have to take out a mortgage on the property immediately but are only responsible for a deposit. This deposit usually ranges from 5 to 10% of the purchase price at the time you buy, with another 10 to 15% paid in installments over the course of construction. The developer does not gain access to this deposit money, which is held in a trust account, until completion. If the developer does not follow through with the construction project, the full deposit will be returned to the buyer.
 
Deposit protection and warranties
Currently, in British Columbia, Alberta, Ontario and Quebec, all newly constructed homes and condominiums must be enrolled in a New Home Warranty Program. In all other Provinces and the Territories, new home warranties are optional. 
In addition to setting specific guidelines for how builders must deal with purchasers, the most important part of a new home warranty program is the insurance plan. This protects purchasers from having to live in an unfinished or structurally defective home if the builder is unable or unwilling to complete the work that needs to be done. It also protects purchasers from unauthorized substitutions of materials, and from losing their deposits up to a specific amount (depending on the jurisdiction) if the builder goes bankrupt.
 
Under British Columbia’s Homeowner Protection Act, administered by the government’s Homeowner Protection Office, homes built by licensed residential builders are covered by mandatory, third-party home warranty insurance. As a minimum, this coverage includes 2 years on labour and materials, with some limits, 5 years on the building envelope and 10 years on structure. The warranty is attached to the home, not to the owner of the home, and remains in effect upon the re-sale of the home until the coverage expires. For more information, visit the BC Homeowner Protection Office.

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Get In Touch

Lola Oduwole

Phone: BC: 604.809.6317 / ONT: 289 .439.5472

lolaoduwole@yahoo.ca

Office Info

AHOM Realty Group

2300-2850 Shaughnessy St  Port Coquitlam,  BC  V3C 6K5 

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