Real estate deposit vs. down payment

If you’re selling your home, you need to be familiar with real estate jargon. You need to know the difference between a canopy and an awning; a mortgage and a loan; and most importantly the difference between a down payment and a down payment.

Believe it or not, there are many home sellers who think down payments and deposits are one and the same when in fact they are not.

A security deposit is the money given or given to the owner when a buyer expresses a sincere desire to purchase the property for sale. It’s a symbolic amount that can be as little as a few hundred dollars or as much as 5% of the total purchase price. The deposit may be refunded if the deal does not go through for reasons beyond the buyer’s control, and may also lapse in favor of the seller. Upon completion of the purchase, the deposit will be credited to the buyer and will form part of their deposit.

A deposit or equity, on the other hand, can be viewed as the first payment on the property itself. It is given when the buyer has made a decision to actually buy the home (unlike the down payment where it is given when the buyer expresses a desire to buy the unit). The down payment is the total amount a buyer can pay in installments and is generally of higher value (10% or more of the total property cost) than regular down payments.

It’s pretty easy to tell apart. Remember that a deposit is smaller and once the transaction goes through, becomes part of the deposit. The sum of these two, plus any outstanding amounts, should be the agreed purchase price of the property.