A good faith deposit is a sum of money paid to secure a transaction, commonly used in real estate and securities contracts. If the agreement is breached, the recipient can keep the money as compensation. Deposit receipts and contracts are provided to document the transaction.
A good faith deposit is a sum of money paid to a seller or third party to secure a transaction and allow you to move forward. For certain types of contracts, a deposit may be required for the contract to become effective. In the event that the person paying the deposit backs out or breaches the agreement, the recipient can keep the money as compensation.
A common situation where the good faith deposit arises is in real estate contracts, where it is known as cash. In these transactions, the buyer establishes a percentage of the offered price as a commitment guarantee. If the deal goes through, good faith money will be applied to the sale price. If it fails to do so as a result of buyer fault, the seller retains the deposit.
Underwriters also use bona fide deposits for securities, such as municipal bonds and stocks. When an offering of securities is prepared, underwriters have the opportunity to bid on it. Bidders must deposit money as an indicator that they are ready to complete the transaction. This ensures that companies and governments offering securities can select an underwriter confidentially.
For people involved in trading stocks and futures, such a deposit may be required to maintain margin. This protects the other party to the agreement from losses. In all of these situations, the deposit is a percentage of the proposed sale price. The percentage chosen varies according to the nature of the contract and the preferences of the parties. As a general rule, there are industry standards that most people follow when determining the amount.
Bona fide deposits can also be used by sellers and brokers of products such as crops. Potential buyers deposit money that ensures they will pay upon delivery of the product. If there is a problem with the contract, the buyer can retain the deposit.
When depositing money in good faith, a deposit receipt is provided so that in the event of a dispute, the amount is clearly documented. People also receive a contract stating when and how the money can be held or released. It is important to read the terms carefully to avoid surprises and ask any questions before you sign the contract and release the funds.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
