What is a deposit, and why IS ONE NEEDED?
A legally binding contract requires four main elements: an offer, acceptance, consideration and communication.
While the terms "offer" and "acceptance" are fairly straightforward - an offer that was made, and either rejected-accepted-countered, "consideration" refers to something of value that is being gained through the contract, i.e. the "deposit".
A deposit can be as little as one dollar in order for it to be a legally binding contract. Practically speaking, a seller will not accept one dollar as a deposit.
"Communication" refers to both parties, the buyer and the seller, being advised that the agreement of purchase and sale (APS) has been signed and accepted by both parties.
What happens to the deposit?
The deposit is part of the buyer's down payment and goes toward the purchase price of the property that is being purchased. The deposit is usually held by the listing company of the property (or in new construction, by the seller's lawyer), and it is held “in trust” in a separate trust account that is audited regularly by the Nova Scotia Real Estate Commission.
The lawyers handling the purchase of the property account for all monies that form part of the transaction.
Part of the agreement calls for a “due diligence” period that protects the buyer and the seller, to have time to do whatever inspections that are part of the agreement, arrange financing, have a legal review of all agreements that have been signed by both buyer and seller. This period is usually 10 days, but can be specified as more or less time on the contract.
If the decision to terminate the agreement for whatever reason is made, within the 10 day due diligence period, the deposit is returned to the buyer in full, without interest or penalty. This is actually on the signed APS,
If the deal is terminated outside of the due diligence period, the buyer may be liable for loss of deposit or other damages awarded to the seller by the courts.
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