What Happens to the Buyer's Deposit If the Sale of My House Falls Through in Ontario?

Who gets the deposit depends on why the sale fell through and whether both sides agree. Deposits are normally held by the brokerage. If you and the buyer disagree about it, the brokerage can pay it out only under a mutual consent or release signed by both sides, or under a court order.

If a brokerage has held a disputed deposit for two years with no determination, it is transferred to RECO, which holds it in trust. Where the buyer failed to close and you suffer a resale loss, the forfeited deposit is treated as part payment of your damages and is deducted from the award. RECO's consumer deposit insurance has limits of $200,000 per claim and $4 million per single event, but those amounts depend on the policy terms in force and coverage depends on the facts of each case.

Whether the buyer actually forfeits the deposit turns on the agreement and why the sale failed, for example whether a condition in the buyer's favour was properly handled. A condition giving the buyer sole and absolute discretion is still read together with any duty to act in good faith and with due diligence. A lawyer can review your agreement before you sign any release.