Humber/Ontario Real Estate Course 3 Exam Practice

What is true about the interest earned on a deposit made by a buyer pursuant to an accepted agreement of purchase and sale?

1. An 'interest on deposit' clause must be added to Schedule A, if the buyer wants to receive interest on the deposit.

2. Any interest earned impacts the balance due on closing.

3. Any interest earned on the deposit is automatically owed to the buyer.

4. Any interest earned on the deposit is automatically owed to the seller.

The correct answer is: Any interest earned on the deposit is automatically owed to the buyer.

The assertion is that any interest earned on the deposit made by a buyer pursuant to an accepted agreement of purchase and sale is automatically owed to the buyer. This is based on common practices in real estate transactions where the deposit serves as a security for the buyer's commitment to the agreement. Typically, any interest that accumulates on this deposit while held in a trust account is considered an asset of the buyer, and thus, the buyer has a claim to that interest when the transaction concludes or if the deposit is returned. The general assumption is that any interest generated during the holding period enhances the buyer's financial position, and since they provided the funds, it is reasonable that they benefit from any interest earned. This understanding is consistent with how trust accounts and deposit handling functions within real estate transactions, where the buyer is the source of the initial funds. In general, key factors influencing the treatment of interest on deposits include the terms specified in the purchase agreement, local regulations governing real estate transactions, and customary practices in the jurisdiction involved. It is always a good practice for parties in a transaction to clarify how interest on deposits will be handled in the agreement to avoid potential disputes.