D is for Deposits.
What do you really know about deposits anyway? Are you aware of how important the deposit is to an Agreement of Purchase and sale and what happens when the buyer of a property fails to deliver the deposit cheque within the time allowed? These questions….and more will be answered here.
First of all, in Canada, there are two specific requirements needed to constitute a legal agreement; the first is a buyer and seller agreeing to the terms of a contract in writing. Those terms generally set out who is party to the transaction, the asset to be traded, a price, and a date that the transaction is going to happen. There may be some other conditions included for the benefit of either or both parties. The second requirement is a deposit. The deposit or “earnest money” is paid by the buyer to the seller or the seller’s representative to show “good Faith” and that the buyer is sincere in his intention to close the transaction.
In the standard OREA Agreement of Purchase and Sale, the buyer can submit a deposit either upon acceptance of an offer or at the same time as the offer (herewith). From time to time an offer may provide for a small deposit with an offer and a further deposit upon removal of conditions. Further, the APS stipulates that the buyer is required to deliver the deposit within 24-hours after acceptance. So what happens if the buyer’s agent shows up with the cheque 30 hours after acceptance?
Here is an interesting example; Seller Jones, represented by Agent Mike, recently accepted an offer on his house from Agent David’s client Buyer Smith. In this situation, there were multiple offers on the property. Agent David’s offer was the highest by several thousand dollars but stipulated that the deposit would be “Upon Acceptance”. The next afternoon, Agent Terry called Agent Mike’s office to find out what the property sold for. The office simply said that they were waiting for the cheque so they were unable to disclose the selling price at the time. Agent Terry, who is a real stickler for details, realizes that the 24 hour period is up and he believes that the accepted agreement is now null and void. He calls his client, Buyer McLoud (who was really upset about losing out on his dream home) and tells him to make a better offer on the property. Later that day Agent Terry presents an excellent, condition free offer to Agent Mike and Seller Jones. The offer is significantly higher than the offer that was previously accepted. Seller Jones tells his agent to inform Agent David that his deal is dead because the deposit was not delivered in time and that they are accepting Buyer McLoud’s offer.
The outcome; It is obvious that Seller Jones would rather take the higher offer from Buyer McLoud but technically, he still has a binding agreement with Buyer Smith who is now, legally speaking, in breach of his contract. In order for Seller Jones to make a deal with Buyer McLoud, he must first have a mutual release between himself and Buyer Smith. That may be hard to do if Buyer Smith wants the property. If however Buyer Smith woke up the next day with a case of buyer’s remorse, he may be happy to sign that mutual release and be grateful that he got out of the deal without any legal action.
As usual, I would love to hear your comments…