Selling a Home in Ontario: What Happens to the Buyer's Deposit?

When selling your home in Ontario, the buyer's deposit is an important part of the offer. It shows the buyer's commitment to the purchase and provides some protection if the deal falls through. Here's what sellers should know before accepting an offer.

When you receive an offer on your home, the purchase price is usually the first thing you look at.

The deposit deserves attention too.

The amount, payment deadline and conditions in the offer can affect how secure the transaction is.

Understanding these details can support you in comparing offers and choosing the one that best fits your selling goals.

What This Guide Covers

• 1. What Is the Buyer's Deposit When Selling a Home?
• 2. How Much Deposit Should a Seller Ask for in Ontario?
• 3. Does a Larger Deposit Make an Offer Stronger?
• 4. When Does the Buyer Have to Pay the Deposit?
• 5. What Happens If the Buyer Does Not Pay the Deposit on Time?
• 6. Who Holds the Buyer's Deposit?
• 7. Does the Seller Receive the Deposit Before Closing?
• 8. Can the Buyer Get Their Deposit Back If a Condition Fails?
• 9. Can a Seller Keep the Deposit If the Buyer Backs Out?
• 10. What Should Sellers Look for When Comparing Offers?
• 11. How Can Sellers Reduce the Risk of a Deal Falling Through?
• Frequently Asked Questions About Buyer's Deposits in Ontario

1. What Is the Buyer's Deposit When Selling a Home?

The deposit is money the buyer pays after submitting an offer, according to the terms of the agreement.

It shows the buyer's commitment to purchasing your home.

The deposit is credited toward the purchase price when the sale closes.

For sellers, the deposit provides some financial protection if the buyer fails to complete the purchase.

A larger deposit may also give you more confidence in the buyer's commitment.

However, the deposit amount is only one part of a strong offer. The buyer's financing, conditions and closing date also matter.

2. How Much Deposit Should a Seller Ask for in Ontario?

There is no fixed legal deposit amount for a typical resale property in Ontario.

In the Greater Toronto Area, around 5% of the purchase price is a common reference point.

The amount can vary depending on the property, market conditions and negotiations.

A larger deposit can make an offer more attractive because the buyer has more money committed to the transaction.

Still, the highest deposit does not always mean the best offer.

A buyer offering a strong price with suitable conditions and a realistic closing date may be a better fit for your situation.

3. Does a Larger Deposit Make an Offer Stronger?

It can.

A larger deposit may show that the buyer has access to funds and is serious about completing the purchase.

This can be especially important when you receive multiple offers.

For example, imagine you receive two offers at the same purchase price.

The best offer is the one that gives you a strong price and a reasonable chance of closing successfully.

4. When Does the Buyer Have to Pay the Deposit?

The payment deadline is written into the Agreement of Purchase and Sale.

Ontario resale offers commonly use three delivery options.

Herewith

The buyer delivers the deposit with the offer.

Upon Acceptance

The buyer must deliver the deposit within 24 hours after the offer is accepted.

This is common in Ontario resale transactions.

As Otherwise Described in the Agreement

The buyer and seller agree to a different deadline.

For example, the agreement may allow additional time if the buyer needs to arrange a bank draft or wire transfer.

As a seller, always check the deposit deadline before accepting an offer.

A buyer who cannot deliver the deposit on time may create unnecessary problems early in the transaction.

5. What Happens If the Buyer Does Not Pay the Deposit on Time?

If the buyer misses the deposit deadline, they may be in breach of the agreement.

This can put the transaction at risk.

The seller's legal options depend on the wording of the agreement and the circumstances.

A missed deadline does not automatically mean the seller can cancel the agreement or keep the deposit.

If your buyer has not delivered the deposit on time, contact your real estate agent and lawyer before taking action.

Your lawyer can review the agreement and advise you on the next steps.

6. Who Holds the Buyer's Deposit?

In most Ontario resale transactions, the listing brokerage holds the deposit in a real estate trust account.

The money is kept separate from the brokerage's business funds.

The deposit generally stays in trust until the sale closes or until it can be released under the agreement or other proper legal authority.

The deposit holder is named in the Agreement of Purchase and Sale.

Ontario's real estate trust accounts are regulated under the Trust in Real Estate Services Act framework. You can learn more through the Real Estate Council of Ontario.

7. Does the Seller Receive the Deposit Before Closing?

Usually, no.

The deposit is generally held in trust until the transaction closes.

On closing, the deposit is credited toward the purchase price and handled through the closing process.

This means you should not plan to use the buyer's deposit for moving expenses, another purchase or other costs before closing.

If you are buying another home, speak with your lawyer and mortgage professional about when your sale proceeds will be available.

8. Can the Buyer Get Their Deposit Back If a Condition Fails?

Yes, in some situations.

If the offer includes a valid condition and the agreement ends properly under that condition, the buyer may be entitled to recover the deposit.

Common conditions include:

• Mortgage financing approval
• A satisfactory home inspection
• Condominium status certificate review
• Other conditions written into the agreement

For example, a buyer may include a financing condition.

If the buyer cannot obtain satisfactory financing and properly exercises the condition, the agreement may end and the deposit may be returned.

The result depends on the wording of the condition and whether the buyer followed the required steps.

This is why sellers should review conditions carefully before accepting an offer.

9. Can a Seller Keep the Deposit If the Buyer Backs Out?

If the agreement is firm and the buyer fails to close, the seller may be entitled to keep the deposit.

Ontario courts have confirmed that a seller may be entitled to retain a deposit after buyer default, even without proving a financial loss.

One important case is Benedetto v. 2453912 Ontario Inc., 2019 ONCA 149.

The seller may also have a claim for additional damages, depending on the circumstances.

However, the deposit is not automatically paid to the seller when a dispute arises.

The funds may remain in trust until the parties agree on their release or a court determines who is entitled to them.

If your buyer fails to close, contact your real estate lawyer immediately.

10. What Should Sellers Look for When Comparing Offers?

The highest purchase price is important. The terms of the offer can be just as important.

Before accepting an offer, review these details.

1. Purchase price: How much the buyer is offering for your home.
2. Deposit amount: How much money the buyer is committing.
3. Deposit deadline: When the funds must be delivered.
4. Financing condition: Whether the buyer needs time to arrange mortgage approval.
5. Inspection condition: Whether the buyer can review the home's condition before committing.
6. Closing date: Whether the proposed date works for your moving plans.
7. Other conditions: Any additional requirements that could affect the sale.

Looking at the complete offer can support you in choosing a buyer who is more likely to complete the transaction.

11. How Can Sellers Reduce the Risk of a Deal Falling Through?

No real estate transaction is completely risk-free.

However, there are steps you can take before accepting an offer.

• Review the buyer's deposit amount and payment deadline.
• Understand every condition in the offer.
• Consider whether the buyer has a realistic financing plan.
• Choose a closing date that works for your situation.
• Make sure all agreed terms are clearly written into the contract.
• Speak with your real estate lawyer when legal concerns arise.

A strong offer should provide a good balance of price, terms and certainty.

Frequently Asked Questions About Buyer's Deposits in Ontario

Disclaimer: This article provides general information about Ontario real estate deposits and is not legal or financial advice. Deposit amounts, payment deadlines, refund rights and remedies depend on the Agreement of Purchase and Sale and the circumstances of each transaction. A seller's entitlement to a deposit does not mean the funds will be released automatically. Consult your real estate lawyer for advice about your specific agreement and any deposit dispute.