5 Things To Know About Real Estate Deposits

From a seller’s perspective, a deposit is a sign of good faith that the buyer, who has contracted to purchase the property, will complete the transaction on the date specified in the contract.


Here are some common questions I’m often asked about real estate deposits.

1.  When does a deposit have to be paid?

The standard agreement of purchase and sale states that the deposit must be submitted “herewith” or “within 24 hours of the acceptance of this Agreement”. Neither alternative is legislated but an accepted good practice.

The reason that buyers are encouraged to come up with the deposit immediately is to demonstrate to the seller commitment to complete the transaction. 

Sometimes a buyer may not be able to submit the deposit within 24 hours for good reason. For example, when a buyer lives out of the area in which the property is being purchased, it’s unlikely that even using courier the required deposit will be received within 24 hours. 

This happens quite often to me when selling cottages. Buyers often live two, three or more hours away from where they are interested in buying a cottage. Often times the decision to purchase a cottage is made a couple of days after viewing the cottage when the buyer has returned home from cottage country. The exchange of a deposit cheque cannot be completed in person unless the buyer decides to drive all the way back to provide the cheque. 

In such instances, I simply change the pre-printed 24 hour term in the agreement of purchase and sale to an additional 24 or 48 hours to allow the buyer time to courier or express post the deposit to my office. 

In today’s technological age the use of e-transfers for submission of deposits are becoming increasingly popular thereby making the standard 24 hour submission of deposit quite simple.

2.  Can the buyer get out of a deal by refusing to pay the deposit?

No. Once the agreement of purchase and sale has been accepted by both buyer and seller, a binding contract exists. Failure to deliver the deposit may be determined a breach of contract by the Buyer. 

I’ve heard it said that a good lawyer will be able to get a client out of a real estate contract should the buyer change his or her mind. This is not the case in my experience. Your REALTOR® should understand contract law and all of the complexities and legalities to making certain that real estate contracts are airtight once all conditions have been waived or fulfilled. 

Should a buyer wake up the morning after with a serious case of buyer’s remorse and refuses to pay the deposit, the seller can sell the property to another buyer. In the event that the seller gets less money than the initial buyer agreed to pay the seller can sue the buyer for the difference (plus legal fees).

3.  What happens to the deposit money once paid?

In most circumstances the deposit is held in trust by the seller’s real estate brokerage. When a deposit is held by the real estate brokerage in trust it is protected by insurance so that even if the brokerage goes bankrupt the buyer’s deposit is protected.

4.  What happens to the deposit money if the buyer is not able to fulfill conditions?

Most agreements of purchase and sale contain conditions such as allowing the buyer to arrange a mortgage, have a home inspection completed or have the septic system inspected to make sure that it is in proper working condition, for example.  

In the event that a buyer is unable to fulfill conditions within the specified time frame indicated in the contract, the deal becomes null and void. For instance, if a buyer is not satisfied with the results of a home inspection the buyer can choose not to proceed with the purchase and request the return of the deposit. However, if the seller suspects that the buyer did not act in good faith in trying to satisfy the condition, the seller may refuse to release the buyer’s deposit. In this circumstance the deposit must remain in the brokerage’s trust account until a court order indicates who is entitled to the deposit.

In the event that the Seller does release the Buyer from the transaction, which is the case more often than not, the Buyer’s deposit shall be returned in full.

5.  How large of a deposit is required when making an offer?

This is an initial decision of the buyer which must be agreed to by the seller (just like any other term or condition of an offer). 

If a buyer’s offer includes a deposit of $1,000 yet the seller doesn’t think it’s enough to illustrate the buyer’s commitment to complete the transaction, the seller might counter offer requesting an increased deposit. From a seller’s perspective, a deposit is a sign of good faith that the buyer, who has contracted to purchase the property, will complete the transaction on the date specified in the contract. As I noted at the beginning of this blog, a deposit from a buyer indicates to the seller a sign of commitment. Meaning that the buyer is committed to completing the transaction in good faith and on time.  

While there is no right answer or minimum amount required, the size of the deposit should be given very serious consideration by both buyer and seller. As a buyer, put yourself in the seller’s shoes for a minute. How much deposit money will give a sense of confidence that the buyer is committed to the transaction? To read more about how much of a deposit a buyer should submit with an offer, click here

The purchase and sale of real estate for most people is one of, if not the single largest financial transaction of their life. REALTORS® are able to provide you experienced guidance and counsel when it comes to navigating the complexities and legalities of real estate contracts.

If you have any questions about deposits or any other real estate matters, feel free to “leave a comment” below and we’ll get in touch.

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13 thoughts on “5 Things To Know About Real Estate Deposits

  1. This is very much great and hope fully nice blog. Every body can easily found her need able information. I am visit first time but I fond many use full article. I will back again when get time.

  2. What if after the deposit, the buyer was not approved for the mortgage after this October 17, 2016 new rules. Can he still get his deposits?

    1. Hi Heide.

      Thank you for your question. It’s a great question.

      When an offer is conditional on financing or a home inspection for example, the standard wording for conditions say “This offer is conditional upon the buyer the Buyer arranging satisfactory financing …… Failing which this offer shall become null and void and the Buyer’s deposit shall be returned in full without interest or penalty.

      Therefore, if conditions are not met, then yes, the deposit is returned to the buyer.

      However, if the Buyer already removed their financing condition and made the deal firm then no, they would not get the deposit back unless the Seller agreed to release the Buyer with no damages or ordered by court.

      If you still have further questions feel free to send an email through the “ask us anything” section of the website.

  3. We had a buyer for our house
    Buyers put 25000 down
    After deadline they did not buy the house
    It’s been 2 months and still don’t have the deposit
    How do we get the deposit from the realtor

    1. Hi Sherry

      Sorry to hear about your situation. Our best advice would be to contact your lawyer. Although it appears the buyer did default from the contract there is only 3 ways a deposit can be released…1. My mutual release or agreement, 2. upon successful closing of a transaction or 3. by court order. Unfortunately the deposit does not get automatically released to the seller upon default.

      Hope that is helpful and good luck.

    1. Hi Andre. Thank you for your question. The real estate agents only get commission on the sale price of the house, not the deposit. The deposit is held in trust and then applied to the commission owing on closing. However, some brokerages do put deposits in an interest bearing account and collect interest on the deposit. But they have to disclose that to you and you must consent to such. Hope that answers your questions. If you have any further questions you can use the “ask us anything” section of the website to contact us directly.

  4. Hello, I’m looking to see what my options are on a situation where I made a conditional offer on a property which was accepted. One of the conditions is,

    “This offer is conditional upon the Buyer reviewing the terms of any rental agreements, rental contracts, lease contracts, or lease to own agreements with respect to the rental items not included in the purchase price and finding such items to be satisfactory to the Buyer in the Buyer’s soleand absolute discretion. The seller will provide copies of such rental agreements within 5 days of acceptance of this offer. Unless the Buyer gives notice in writing to the seller personally or in accordance with any other provisions for delivery of notice in this Agreement of Purchase and sale or any Schedule thereto not later than 5pm on the 31st day of May 2017 that this condition is fulfilled , this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the sole benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the seller as aforesaid within the time period stated herein.”

    There is a deposit required to be given by tomorrow evening (24hrs). After taking another look at the property I noticed issues which I didn’t the first time around and we were given information on the furnace buyout amount which we are not pleased with. The information on the furnace buyout was sent via text by the sellers agent to our agent stating the seller found the contract and that was the buyout amount. We still have not seen any contracts. We have already notified the seller’s agent that we want to cancel the offer, however they are saying the deposit still has to be given. Seems like a waste of time considering we are somewhat within our condition even though we did not see the actual contracts yet. So my questions are do I still have to give the deposit? If I dont give the deposit, what would happen? If I give the deposit, within how long can I expect to get the money back?

    Any info is greatly appreciated.

    1. Thank you for your comment. We’d like to give you advice but our professional code doesn’t allow us to interfere with an existing contract. Your REALTOR® or Lawyer will be able to advise you of your options. Click here to read a great article authored by well known real estate lawyer Mark Weisleder that might be of interest to you. All the best!

    1. Yes, the deposit forms part of the purchase price and is therefore the seller’s on completion. The deposit is deducted from the purchase price to determine the balance the Buyer owes to the seller on closing.

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