Buyer's Deposit in Ontario: When You Can Get It Back

You signed an agreement to buy a home and put down a deposit. Now the inspection went badly, the financing is shaky, or you have simply changed your mind. The question on your mind is whether that money comes back.

The honest answer is that it depends on why the deal is ending and what your agreement says. This article explains the general rules for deposits in Ontario so you can see where you stand and what to check before you act.

Who holds your deposit and who can release it

In a real estate deal, the deposit is normally held by the brokerage in a real estate statutory trust account. The seller does not simply receive it on acceptance, and you cannot simply take it back.

The deposit can be released only with a mutual consent or release signed by all parties, or under a court order. Neither RECO nor the brokerage can pay it out until all parties agree. That is why a buyer who walks away often finds the money frozen rather than returned.

When a failed condition can lead to a refund

Many offers are conditional, for example on a satisfactory home inspection. A condition must be waived or performed by the agreed time before the deal becomes binding, and it must be used in good faith.

Depending on how the condition is worded, if it is not met the buyer may terminate or the contract may end automatically, with the deposit returned. Once all conditions are waived, the agreement is firm and binding.

• Check the exact wording of the condition, including who may end the deal and by when.
• Look at the deadline for waiving or fulfilling it, and act within it.
• Be able to show you acted honestly, since conditions must be used in good faith.
• Get the release in writing, signed by all parties, before you expect the money back.

When your deposit may be at risk

If the agreement is firm and you decide not to go ahead, you are in a much weaker position. There is no simple rule that says the deposit is automatically lost or automatically returned. What happens depends on your agreement and on the facts, and a lawyer can review them.

Be careful with the deposit itself. Paying it late or withholding it can itself breach the agreement. In one RECO example, a buyer held back a deposit that was due on acceptance until after an inspection, and that may have given the seller grounds to terminate and seek damages.

If the seller is also entertaining other offers, remember that a conditional agreement is not final and binding until all its conditions are met or waived. That affects both sides, so read the agreement closely before assuming the deal is over.

What happens if buyer and seller disagree

If the parties cannot agree on who is entitled to the money, the brokerage generally cannot decide for them. The deposit stays where it is unless all parties sign a release or a court orders otherwise.

If a brokerage holds a deposit for two years and it is still not clear who is entitled to it, the deposit goes to RECO. RECO also pays out only on consent or a court order.

Consumer deposit insurance, up to $200,000 per claim, does not cover deposits that are simply in dispute, as opposed to missing or misappropriated. So a disagreement over who wins is not something that insurance resolves.

What to do next

• Find your agreement of purchase and sale and read the conditions and their deadlines.
• Do not miss or delay the deposit payment, even if you are worried about the deal.
• Do not sign a waiver of conditions until you are sure about the issue.
• Put your concerns in writing to your agent or lawyer and keep copies of everything.
• Speak with a real estate lawyer before you tell the seller you are backing out.

Acting early matters most. A lawyer can tell you whether a condition has really failed, whether the deal is firm, and how to ask for a signed release.

Frequently asked questions