Real Estate Deposits in Ontario: Rules and Risks

In an Ontario real estate transaction, the deposit is a sum of money the buyer provides shortly after an Agreement of Purchase and Sale is signed, as a sign of good faith and serious intent to complete the purchase. It is not a separate fee on top of the purchase price — it is simply an early portion of the total funds the buyer owes, credited back to the buyer on closing.

A deposit is distinct from a down payment. The down payment is the portion of the purchase price the buyer pays in cash on closing, after mortgage financing is accounted for. The deposit is paid much earlier, generally within a short window after the offer is accepted, and the amount of the deposit is simply credited toward that down payment and the overall purchase price when the deal closes.

The deposit also plays a signalling role during negotiations. In a competitive offer situation, a larger deposit can make an offer look more serious to a seller, since it represents a meaningful amount of money the buyer is prepared to put at risk if the deal does not close as planned. It is one of several terms, alongside price and conditions, that sellers weigh when comparing competing offers.

Because a deposit represents real money changing hands well before closing, how it is held, when it can be released, and what happens to it if the deal does not close are all significant practical questions — covered by both the terms of the specific APS and general rules that apply to real estate trust funds in Ontario.

The deposit obligation generally sits alongside, rather than instead of, the other commitments in the agreement. A buyer who pays the deposit on time has not yet finished their obligations under the contract — they still need to satisfy or waive any conditions and, ultimately, complete the purchase on closing day.

A deposit is generally not paid directly to the seller. In most residential transactions involving real estate agents, the deposit is held in trust by the listing brokerage, where regulatory rules require it to be kept in a dedicated trust account separate from the brokerage’s own operating funds. In some transactions, particularly private sales or certain new-construction purchases, a lawyer holds the deposit in trust instead.

The brokerage or lawyer holding the deposit is bound by trust rules that generally prevent releasing the funds to either side without the agreement of both parties or a court order. This neutral holding arrangement is one of the more protective features of how Ontario real estate deposits work in practice.

Ontario has no statutory minimum or standard deposit amount. The figure in any given transaction is whatever the buyer offers and the seller accepts as part of the negotiated terms, and it is generally influenced by local market conditions, the overall purchase price, and how competitive the offer needs to be to get accepted.

As a general, non-binding observation, deposits in many residential transactions tend to fall within a range connected to the purchase price, with higher-value or more competitive markets sometimes seeing larger deposits offered to strengthen a buyer’s position. Pre-construction condominium purchases often use a very different structure, with deposits paid in staged instalments over an extended period rather than as a single lump sum. There is no single “correct” figure, and what is appropriate in one deal may not be in another.

Buyers sometimes assume a higher deposit automatically signals more risk, but the real exposure is the same regardless of size: it is whatever amount the buyer agreed to put forward and could lose if they fail to close without a valid excuse. A smaller deposit does not reduce a buyer’s overall responsibility to complete the deal, it simply changes how much money is sitting in trust along the way.

A deposit is generally at risk of forfeiture when a buyer fails to complete a firm agreement without a valid contractual basis for backing out. Once all conditions have been satisfied or waived and the deal is firm, a buyer who simply changes their mind, or whose financing falls through for reasons unrelated to a financing condition that was already waived, is generally considered to be in breach of the agreement.

In that situation, the seller can generally treat the deposit as forfeited, and the agreement itself, along with Ontario contract law more broadly, may also allow the seller to pursue additional damages if the deposit does not fully cover the loss caused by the failed sale — for example, if the property later resells for less. Our guide to what happens if a buyer or seller fails to close covers this in more depth.

A deposit cheque that bounces, or a wire that never arrives by the deadline the agreement sets, raises a related issue. Failing to actually deliver the deposit on time can itself be treated as a failure to honour the agreement, separate from whatever happens later at closing, and some agreements expressly allow the seller to treat that failure as grounds to end the deal.

A deposit is generally returned to the buyer when the deal does not become firm through no fault of the buyer’s bad faith — most commonly, when a condition such as financing or inspection is not satisfied, and the buyer exercises their contractual right to end the deal within the time frame the agreement sets out. For more on how these clauses work, see our guide to conditions in an Ontario APS.

A deposit is also generally returned to the buyer if the seller is the one who fails to close, or if both parties agree to mutually cancel the deal. In each of these situations, the buyer did not breach the agreement, so there is no contractual basis for the seller to retain the deposit.

Timing matters here too. Even where a buyer is clearly entitled to a refund — because a condition was not met, for example — the brokerage or lawyer holding the funds will usually still need written direction confirming the deal is over before releasing anything. A buyer who is owed a refund but never follows up in writing can end up with a deposit sitting in trust far longer than necessary.

Disputes over who is entitled to a deposit are fairly common, particularly when a deal falls apart and each side blames the other. Because the brokerage or lawyer holding the funds generally cannot release them without agreement from both sides, an unresolved disagreement can leave a deposit sitting in trust for an extended period.

Many of these disputes are ultimately resolved through negotiation — sometimes with a compromise split, sometimes with one side simply agreeing to release the funds once the overall picture becomes clear. Where the parties cannot agree, an application to the court may be needed to determine who the deposit should go to. This article is general information, not legal advice about a specific deposit dispute. For broader options when a deal is unraveling, see our guide to backing out of a real estate deal, or reach out through our contact page with general questions about the site.