Real Estate Deposit: A Definitive Guide and FAQ

Real Estate Deposit related issues

How much of a deposit do I need for a house

  • A deposit on a house offer is usually required by the seller as a promise to purchase. 
  • There is no minimum amount, usually 5% of the purchase price, which is deducted from the final closing cost
  • Increased real estate deposit to buy a house could be one of the factors the seller considers favorably on your offer, thus a large bank draft on house deposit from home buyers increases the chance to win during the bidding wars

Down payment vs deposit

Down payment is the amount that you pay to the mortgage lender upfront. This amount plus the mortgage equals the home purchase price. In essence, the downpayment is a promise to the lender, which varies with your circumstances, ranging from 5%~35%. While Deposit is your promise to the seller. 

Who Holds Deposit on House Purchase

  • In a typical transaction, the home buyer makes the deposit cheque payable to the listing brokerage. 
  • The listing brokerage holds the deposit in a trust account pending completion or termination of the agreement. 
  • In the case of buying a house for a private sale, the deposit can be held by the real estate lawyer's trust account.

How does the deposit work when buying a house

The buyer can provide a cheque, bank draft, money order, or submit a deposit using an Electronic Funds Transfer (EFT). Most commonly, you may be required to submit a deposit by certified cheque.

There are 3 major methods of deposit delivery:

  • Herewith: the deposit is provided along with the offer to the seller.

  • Upon acceptance of the offer: the deposit will be provided once the offer is accepted within 24 hours of acceptance.

  • As otherwise described in the agreement: when and how to provide a deposit is identified in the sales and purchase agreement by including the details on a schedule added to the agreement. 

Is house purchase deposit safe?

  • A buyer can be assured that when a brokerage places the deposit in their real estate trust account, the funds are protected under RECO’s Insurance Program. 
  • In the event of a brokerage default, theft, fraud, misappropriation, or wrongful conversion of the deposit by a registrant, the buyer’s deposit is safeguarded. 
  • The insurance provides coverage up to a maximum of $100,000 per claim, with no deductible for the buyer to make a claim.

What happens to the deposit when buying a house

  • Once a deposit check has been placed in the brokerage’s real estate trust account, there are real estate deposit rules regarding the disbursement of the deposit in Ontario.
  • In the case of “Herewith”, if the offer was never accepted, the brokerage can refund the deposit to the buyer without signed approval from the seller.

When does the seller get the deposit?

The seller won't get the home purchase deposit until the closing day. In fact, the real estate commission will be adjusted from the deposit trust account of the listing brokerage.

If a deal falls through, who gets the deposit?

If the offer is accepted, but the deal doesn't go through, the brokerage must receive a mutual release (a written, signed direction from both the seller and buyer relating to the return of the deposit) or court order, prior to disbursing the deposit from the trust account.

Penalty for buyer not closing on time Ontario

  • If the conditions in the contract are fulfilled or waived, the buyers can't close the deal for their own reason such as finance falling through, market change, etc, and the seller doesn’t agree to any agreement change, then the contract is breached.  
  • If there is a breach of real estate contract by the buyer. The seller can forfeit deposits and may sue the home buyer for any other loss.