What is a deposit in Ontario real estate?
A sum of money provided by a buyer and held in trust by a brokerage to demonstrate commitment to a conditional real estate purchase; it is applied toward the purchase price at closing or forfeited if the buyer withdraws without meeting the agreement's conditions.
In Ontario real estate transactions, a deposit is money the buyer gives to the brokerage at the time an offer is accepted. The brokerage holds this amount in trust, not as payment to the seller, but as proof the buyer is serious about the purchase. The deposit is typically a percentage of the offer price, most commonly between 1 and 5 percent, though the exact amount is negotiated between the parties.
The deposit remains in the brokerage's trust account until the transaction closes. At closing, the deposit is credited toward the buyer's down payment and closing costs. However, if the buyer fails to meet a condition written into the offer (such as obtaining financing or home inspection approval) without valid reason, or if they back out of the deal when not permitted to do so, the deposit may be forfeited. The seller can claim the deposit as compensation for the failed sale.
When conditions are satisfied or waived, the deposit is released by the brokerage to the transaction and applied at closing. If the deal falls through for a permitted reason (for example, the home fails inspection and the buyer exercises their inspection condition), the buyer's deposit is returned. Ontario real estate agents must follow provincial trust account rules to ensure deposits are held properly and released only when appropriate.