Saturday 25 November 2017

"I get my deposit back, right?"

Making an offer on a house with some conditions, maybe mortgage or home inspection, one of the common buyer questions is to confirm that they will get the deposit back if the conditions don't work out. 

Most standard conditions* include the wording that if conditions are not fulfilled by a certain time frame then "this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction."

So in short, the answer is "yes you will get the deposit back."  However, there are some qualifications to the answer a buyer should be aware of.

First, you have to be acting in good faith.  Having a condition on a home inspection does allow a way out.  And with the usual wording* indicating that the inspection result must be okay in the buyer's sold and absolute discretion, there is a LOT of wiggle room on why the buyer might back out after the inspection.  [Courts have agreed that buyers can cancel on what sellers would feel are trivial reasons] because it is in the buyer's sole and absolute discretion..  BUT..  the buyers have to be seen as acting in good faith.  One can not cancel the contract if one has not even attempted to do a home inspection.  The courts can take a dim view of someone using a condition to back out of a deal outside of the parameters of the condition.

Second, buyers should be aware of the trust nature of the deposit.  When money is put into a brokerage's trust account, it is being held 'in trust'.  Essentially the money belongs to no one and can not be released by the brokerage without the express written consent of both parties (or court order and a couple other exceptional situations) or according to the contract such as when a sale closes (when it is applied toward purchase price).  So when you back out of a purchase after a condition has failed, the seller still has to sign off on returning the deposit.  You have a right to it according to the contract, but the brokerage can't release it without that written consent from both sides. If they decide to be unreasonable, then it comes to suing them.  But their agent and lawyer should be advising them of this, so it's unlikely they will remain too obstinate about it. 

I have never personally had an issue with a deposit being returned to a buyer client, but we know strange things happen out there.  For all practical purposes in most times and places, the answer should be yes, you will get the deposit back. 

* the Ontario Real Estate Association (OREA) has a library of standard clauses and conditions which real estate professionals use in drafting contracts. One must be careful to check the wording of every offer, especially is registered professionals are not involved, because it is easy to alter wording and drastically alter meaning and end results.