In Common Law, there must  be consideration for a contract to be binding. A real estate deposit essentially acts as that consideration when buying a home. It binds the buyer to the agreement and represents their ‘good faith’ that in 30, 60, 90 days on the Date of Completion they will close on the transaction. It gives the buyer some ‘skin in the game’ and the seller some re-assurance.

In Ontario, the Agreement of Purchase and Sale states a deposit is made by negotiable cheque. It can be a good, old-fashioned bank cheque, however, most sellers and their Realtors frown on anything less than a Bank Draft or Certified Cheque.

And in case you’re wondering, cash is typically not accepted at a Real Estate brokerage. That is a bit of a no-no and comes with a whole different set of challenges – nobody wants FINTRAC investigating them! (FINTRAC - that’s the Federal Government’s anti-Terrorism and anti-Organized Crime money laundering watch dog.)
When do I pay my deposit?
This is always set out in the Agreement of Purchase and Sale and there are three timeframes:

“Herewith” means the deposit is provided at the very moment of acceptance; the buyer hands over the deposit on the spot.

“Upon Acceptance” means the deposit must be delivered to the Real Estate Listing Brokerage within 24 hours. Having an offer accepted late on a Saturday and your bank is not open on Sunday may be a nice excuse, but one that the seller need not accept. If you can’t get the money there in 24 hours, this must be addressed in the Agreement.

“As otherwise described in this Agreement of Purchase and Sale” is where you would more clearly state when the money will be deposited. So if your bank is not open for a day or two, or you need to transfer the funds from an investment account and you need more time, then stipulate this in the agreement.

You can consider putting a small deposit with funds available now AND the larger sum in a couple of days. Always, always, always set this out in the Agreement so it is clear to all parties to the transaction.
How much is the deposit?
The amount of a deposit varies and is not a standard rate. Typically, in a hotter market the deposit is expected to be at least 5% of the purchase price. Generally, 3 – 5% of the purchase price is a reasonable deposit. And in some markets, where transactions are fewer, deposits can be as little as a few hundred dollars.

The second most important thing you should do when you’re ready to look at homes, is make sure you have your deposit money available and ready to use.

You may be wondering “What is the first most important thing, Michael?”

Of course, it’s to call us and book a Consultation so we can begin helping you.
Where does the money go?
Most often, the money is deposited into the Listing Brokerage Trust account. This way the money is protected under Provincial Legislation; and the Listing Brokerage and Realtor have insurance to protect this money for the consumer. The Listing Brokerage must disclose if the funds are in an interest bearing account and how that interest, if any, will be calculated and paid.
Conditions such as Financing and Home Inspection typically include wording that in the event the buyer is unable to fulfill the condition within a set time period, the deposit is returned to the buyer in full and without penalty. Typically, this is the case. However, some paperwork is required. The buyer and seller must sign a Mutual Release which releases both parties from the Agreement; and sets out how and to who the Listing Brokerage is to pay back the deposit funds. Without this Mutual Release, only a Court Order can instruct the Listing Brokerage to release the funds.
What if I can’t close the transaction?
And of course, the dreaded scenario… the buyer is unable to close the transaction on the Completion Date. This is one foggy area and legal opinions are varied. One thing is certain… the funds are not automatically the property of the seller.

As stated above, there are only two ways for deposit money to be returned. Mutual Release or Court Order. A Listing Brokerage is bound by Provincial Legislation and there is nothing that can be done. The buyer should assume the deposit money being provided is non-refundable. And the seller must be prepared to justify in Court that damages have occurred.

Now I am not a lawyer, nor do I wish to get into a debate with any lawyers on this one. They are smarter than me when it comes to the law and I will always defer to a client’s legal counsel in such a circumstance. Just know that until EITHER the buyer and seller amicably come to settlement terms and sign a Mutual Release OR a court orders a payment, then the deposit sits in the Listing Brokerage Trust Account and eventually transfers to the Provincial Government as set out in the Real Estate and Business Brokers Act (I don’t know about you, but we don’t really need to give the government any more of our money unnecessarily!)
There was this one particular sale…. 
The buyer and seller had an accepted Agreement of Purchase and Sale and the buyer delivered the deposit. About a month before the closing date, the seller did the midnight pack and walked away from the house – even sold the appliances that had come with the sale. And then two weeks before closing, the seller’s bank seized the property under Power of Sale.

We couldn’t close the sale or sign a Mutual Release as the seller was no longer the owner AND had disappeared. The buyer had to take the Listing Brokerage to Court to get the funds released (which they did), but unfortunately there are rare occurrences when a sale does not go as planned.

Every step of the buying and selling process has its potential complications and seeking professional advisors is always the most important first step. Give us a call today. We can help you with so much more than just a deposit.