Full Purchase Price Paid as a Deposit

Question:

A property sells for $750,000.00 and the Buyer’s agent brings a deposit for $750,000.00 with the balance of the purchase price paid on closing.

Are there any implications here, or is this all right?

Answer:

On the issue of the deposit, there really isn’t one. That’s a problem. In fact the full purchase price has been paid upfront and is misdescribed in the Agreement as a “deposit”.

Deposits are forfeited for breach of contract or non-completion. Deposits cannot be a penalty. A deposit of 100% would be a penalty. A deposit of up to 20% is usually allowed. Deposits over twenty percent deposits are “at risk”.

This particular transaction calls for a deposit, so you need to have:

1) a lower, specified deposit, and

2) a further payment being the balance of the purchase price held in trust, but essentially returnable, but not forfeited.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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