Humber/Ontario Real Estate Course 4 Exam Practice

Under which condition can a deposit made by a buyer earn interest?

1. If 'interest on deposit' clause is added to Schedule A

2. Interest earned is automatically owed to the buyer

3. Interest impacts the balance due on closing

4. Interest is automatically owed to the seller

5. If the buyer requests a higher interest rate

6. Only if the deposit is above a certain amount

The correct answer is: If 'interest on deposit' clause is added to Schedule A

A deposit made by a buyer can earn interest if an "interest on deposit" clause is explicitly included in Schedule A of the purchase agreement. This clause serves as a legal arrangement that stipulates the conditions under which the deposit will earn interest, outlining how the interest will be calculated and who will receive it. Without this clause, deposits typically do not earn interest, or any interest that may accrue would not be mandated to be paid to the buyer. This reinforces the importance of clear communication and documentation in real estate transactions, ensuring that both parties understand the terms relating to the deposit and any potential interest. The other conditions do not establish a basis for a deposit to earn interest in a standard real estate transaction. For instance, simply stating that interest earned is automatically owed to the buyer does not create a framework for interest accumulation unless specified in the agreement. Likewise, the impact of interest on the balance due at closing or who it is owed to does not affect whether interest is generated on the deposit. The idea that a buyer can receive a higher interest rate solely upon request doesn't guarantee such a provision unless it is formally documented. Finally, there is no universal threshold for deposits to earn interest; it is contingent on agreed contractual terms rather than a specific amount.