Have you ever wondered if a Seller can keep a Buyer’s Deposit if the Buyers don’t successfully close the deal on the closing date they originally agreed to buy your home?
More specifically, many people ask me if the seller can keep the deposit if a buyer doesn’t close the deal.
What if you had a firm deal? Deposits are an often misunderstood part of the real estate transaction.
First of all nobody should just assume they can keep the deposit.
Just to shed a little bit more light on the point of deposits.
When you make an offer to purchase a house or Condo you need to give a deposit in order to have a legally binding contract.
Before I continue I need to clarify something up real quick before I get to the rest of my answer because I’ve often had Buyers ask me if they make an offer and they give a deposit and then they don’t WAIVE the conditions that were included in their offer … do they get their deposit back?
So I want to make sure I’m being very clear about this.
When you provide a deposit with your offer and the offer is conditional on financing or conditional on inspection or conditional on any other number of things in the agreement if the deal does not firm up or in other words if you do not waive the conditions then you as a buyer absolutely do get your deposit back in full.
However the topic of this vlog is about a Seller having a firm deal and so if the buyers already waived their conditions and you have a legally binding contract what happens to the deposit if the Buyer doesn’t close the deal?
On many occasions I’ve heard a Seller just blurt out loud that “if the buyer can’t close then that’s okay because we’ll just keep the deposit and we will sell it again.
It’s not quite that simple unfortunately.
I’ve even had a case where I sold a house in multiple offers and the seller chose to take one offer over another offer that was the same price simply because the deposit was substantially higher.
I advised my client that I was concerned this buyer (the one offering the higher deposit) won’t close the deal whereas the other offer I know the buyers can close on he deal.
He said yeah there’s a larger deposit so I’ll just keep it.
I had to advise him that’s not how it works.
You see if a buyer can’t or doesn’t close the deal then the seller technically would have to sue them.
The question is what’s your time worth what are your legal costs and will you win?
But you cannot keep the deposit unless a court order says that you’ve been awarded to keep it.
Now generally here’s what what WILL happen.
First of all it can take a year or two in court. So now you’re tied up for a year or two and the market could go down or change by the time that’s all resolved.
Second of all what judges look for is did you try to resell your property to mitigate the problem?
So first we have to try and re-sell the property.
Now if we re-sold the property for less money than the first (original) deal that we had because the market had changed … then you could sue for the difference in money you lost.
But in this our type of market where everything keeps going up we’d possibly sell your house for the same money in three weeks or a month as we sold it for originally.
In that case what will happen is the deposit will go back to the buyer who unfortunately did not honour the first agreement.
So you should never assume you can keep a deposit if the buyer doesn’t close the deal.
It has to go to court and there has to be a court order that awards that money to you before you can keep it.
But .. that rarely happens because 99.9% of the time your Realtor will help you resell the property much sooner than it would take in court.
And when that happens … like I said … you can’t keep the deposit from the first buyer who defaulted.