Legal Brief for October, 2024

How Much Of A Deposit Is Enough?

Anyone that is purchasing a house or a condo will need to decide how much of a deposit they would like to provide for the seller.  The purpose of a deposit is to show the seller that the purchaser is serious about proceeding with the purchase, and that they have a vested interest in doing so.  If a purchaser is buying a property for $600,000.00 and they are only willing to make a deposit of $1,000.00 that tells the seller that the purchaser either is not serious about the purchase and might be willing to cancel the deal and walk away from their deposit, or the purchaser is short of funds.  In either case the seller will not be impressed, and will be unlikely to accept such an offer.

When I first started practicing law many years ago (let's just say it was before computers and cell phones were part of everyday office equipment) there used to be a rule of thumb that a reasonable deposit was 10% of the purchase price.  That rule seems to have dropped by the proverbial wayside over the years.  When purchaser clients ask for my advice on an appropriate amount for a deposit I suggest that it should be a minimum of $10,000.00 regardless of the purchase amount.  If the purchase price is above $500,000.00, which is common these days, I suggest that their deposit amount should be $15,000.00 or $20,000.00.  An amount of this nature is usually enough to reassure a seller that the purchaser is serious and is committed to completing the purchase.

The downside risk of a higher deposit amount for a purchaser is that if something "comes up" that is catastrophic in nature, such as a job loss or a serious illness that causes them not to want to complete the purchase, then they will likely forfeit the entire deposit amount.  If the deposit is a low amount such as $1,000.00, then it won't hurt the bank account too much to lose that.  If the deposit is $15,000.00 then that can certainly become a financial hardship.

If a purchaser is working with a realtor it is always best to have a thorough discussion with the realtor as to what amount for a deposit they think will be reasonable.  The realtor will be conversant with the deposit amounts used on transactions in the neighbourhood and will be able to provide sound advice for you.