Six things to know about real estate deposits
When you make an offer on a house you have to put down a
deposit. Here are some things to keep in mind.
Real Estate, Published on Fri May 16 2014
Here are some answers to common questions about deposits when you are buying a house.
When must a deposit be paid?
In Ontario, the standard real estate contract gives the buyer two choices; you can pay the deposit
immediately when you make an offer, or you can agree to pay it within twenty four hours after
the seller accepts it. Most buyers prefer the second option. If you are in a bidding war, you will
be encouraged to come up with the deposit immediately, to show good faith to the seller.
Can the buyer get out of a deal by refusing to pay the deposit?
No. Once the deal is accepted, you can’t change your mind. If you do, the seller can sell the
property again and if he gets less money than you were going to pay the seller can sue you for
the difference, plus legal fees.
What happens if the deposit is paid late?
The seller has the right to cancel the deal. This is because all time limits matter in a real estate
contract and if you are late, even by a few minutes, the seller can try and cancel. I have seen this
happen many times, especially when the seller knows that there is another buyer out there who
will pay more money. If you need more time to come up with your deposit, say so in your offer.
How much should a buyer pay as a deposit?
This is a tough question, and will largely depend on where your home is located. In Toronto,
deposits are now usually up to 5 per cent of the sale price. In Brampton, it is closer to 2 per cent.
In some areas of Ontario, deposits can be as little as a few hundred dollars.
Why does the deposit go to the seller’s real estate agent and not the seller?
If the seller goes bankrupt or disappears with the deposit, the buyer is not protected. When the
deposit is held by the real estate brokerage, it is in trust and is also protected by insurance so
even if the brokerage goes bankrupt, the buyer can get their money back.
If the buyer is unhappy with their home inspection, can the seller refuse to return the
This happens more than you think. A deposit cannot be released unless both the buyer and seller
agree. If a seller believes the buyer did not act in good faith in trying to satisfy their condition,
whether it is a home inspection, financing or a condominium status certificate review, they can
refuse to release the deposit. This means it stays in the broker’s trust account until a judge
decides who gets it, which can take years. As a precaution, buyers should consider making two
deposits in their offer, a small one of say one per cent when the offer is accepted, and a second
larger deposit once the condition is satisfied.
Understand the rules about deposits before you sign any real estate contract. It is expensive to
change your mind later.