Lindsay Smith

By Lindsay Smith/Real Estate Columnist

Two scenarios: You are a buyer and bid on a home you fell in love with. You are asked for a deposit to bind the contract once your offer is accepted by a seller. Or, you are a seller and your agent brings you an offer to buy your home and with it the buyer submits a deposit.

What is the deposit for, and what the heck happens to it once it is deposited? Let’s dig into this to get some clarity, as this seems to be somewhat cloudy with most people.

It is common to require a deposit when a buyer makes an offer to purchase a home. There are no “hard and fast” rules on the amount of the deposit, typically, the amount is determined by the listing sales rep and the seller. Common deposits in our area will be in the $10,000 – $50,0000, depending on the value of the property being purchased. One thing to make clear, the deposit is not the down payment, rather, the deposit becomes part of a down payment when a buyer is buying a property. The down payment is monies a buyer offers on closing that is given to the seller along with the monies held as a deposit.

The deposit is placed into a trust account operated by the listing broker and will ultimately become part of the down payment the buyer uses to close the property. Trust accounts are operated by lawyers and real estate brokerages, holding money in trust on behalf of clients. In the case of a deposit held by a real estate brokerage that will be used to complete a transaction. There are only two ways the monies can be released:

  • By written agreement between both the buyer and seller to complete the transaction or by means of another mutually consented agreement.
  • By court order.

Trust accounts are one of the most trusted places to hold funds awaiting a transfer of a property, business, or other business transaction. They are regulated to the penny, with the understanding that a lawyer or brokerage cannot operate without a trust account. Serious stuff!

One of the questions that comes up is what happens to a deposit when a deal falls through or if a property sale is not completed. Does it go to the buyer or seller? This is where the above two points come into play. If a property is sold conditionally and for some reason the buyer cannot fulfill the condition, they inform the seller of their desire not to complete the sale. In the agreement, (in most cases) there is a provision allowing the deposit to be returned to the buyer in case of a condition not being satisfied. This provision is agreed upon with the acceptance of the agreement.

When a property sale does not complete, the outcome is still covered on the above points. If, for some reason the buyer is not able to close, or in the case the seller cannot or will not complete the transaction the buyer and seller can agree to release the deposit to one, or the other, or a split between themselves. In the event an agreement with regards to the release of deposit cannot be agreed upon, the only other way is to litigate, having a judge direct the monies to be released to one or the other party (or a combination of both).

I have personally had five transactions not complete, once sold firm in 35 years of selling real estate. For the most part, once two parties come to an agreement, the transaction completes.

The important things to remember are: If you are a buyer and buy a home conditionally, if you cannot meet your conditions, there typically are provisions in your agreement to have your deposit returned. If you are a seller and you enter into an agreement to sell your property, the deposit becomes yours once the transaction completes.

Litigation is a lengthy, costly experience and many clients find a way to come to an agreement when a deal aborts. Quick online research can reveal the “horrors” of transactions not closing and the costs and time taken to come to a resolution. These situations are more the rarity than the norm. In my experience, most people are honest when approaching contracts and when things go sideways, they want to resolve the issue as quickly and painlessly as possible.

I have been a full time real estate broker for over three decades and never profess to be an expert in real estate law. If you find yourself in a situation where you need advice with regards to a contract or a deposit, my recommendation is to reach out to a full-time real estate lawyer. They can help to guide you through the process of resolving your issue.

If you have any questions on the above info, or if you see a real estate emergency on the horizon, I can be reached at If you need a referral to a local real estate lawyer, please reach out. I am  happy to help.

Lindsay Smith

Keller Williams Brokerage Inc








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