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Buying a home is an exciting milestone. Whether you're a first-time buyer or looking to upgrade, the journey involves several steps. One crucial aspect is the deposit—a topic that often raises questions for buyers and sellers alike. How much should you pay? When is it due? What happens to the deposit if the deal doesn’t go through?

In Ontario, deposits play a significant role in real estate transactions. They are more than just a formality; they represent trust and commitment between buyers and sellers. Understanding how deposits work can save you stress, help you make informed decisions, and protect your hard-earned money.

In this guide, we’ll break down everything you need to know about real estate deposits in Ontario, using straightforward language that makes this complex topic easy to understand. By the end, you’ll feel confident about navigating the deposit process, whether you’re buying or selling a home.

What Is a Real Estate Deposit?

A real estate deposit is a sum of money that a buyer gives as a sign of good faith when making an offer on a property. It’s like a handshake—only this handshake involves money. The deposit tells the seller, "I’m serious about buying your home."

If the deal goes through, the deposit becomes part of your down payment. However, if the buyer changes their mind without a valid reason, the seller may have the right to keep the deposit as compensation. This helps protect sellers from time wasters.

Why Are Deposits Important?

Deposits serve two main purposes:

1. For Buyers: They show that you’re committed to the purchase. Without a deposit, your offer might not be taken seriously, especially in competitive markets.

2. For Sellers: Deposits provide security. If a buyer backs out for no reason, the seller keeps the deposit to cover losses like relisting the property or losing other buyers.

How Much Should You Expect to Pay?

In Ontario, there's no strict law dictating the exact amount for a real estate deposit. However, it's common practice for deposits to be around 5% of the property's purchase price. For example, if you're buying a home listed at $750,000, a typical deposit would be approximately $37,500.

Keep in mind that this percentage can vary based on factors like market conditions and regional practices. In competitive markets, offering a higher deposit can make your offer more attractive to sellers.

When Is the Deposit Due?

Timing is crucial when it comes to deposits. Generally, in Ontario, the deposit is due within 24 hours after the seller accepts your offer, unless another timeframe is specified in the agreement.

It's essential to have your deposit funds ready to ensure a smooth transaction.

How Do You Pay the Deposit?

Deposits are paid in secure forms like:

• Certified Cheques: A cheque that your bank guarantees.

• Bank Drafts: A secure payment issued by the bank on your behalf.

• Electronic Transfers: Direct deposit from your bank to the seller’s account.

These methods ensure the money is available and safe.

Who Holds the Deposit?

The deposit is usually held in trust by the listing brokerage in their Real Estate Trust Account. These accounts are strictly regulated and regularly audited to protect both buyers and sellers. In some cases, especially when no brokerage is involved, the deposit might be held by the seller's lawyer.

What Happens If the Deal Falls Through?

What happens to the deposit depends on why the deal didn’t close:

1. If the buyer fails to meet conditions:

• For example, if they can’t secure financing or decide not to buy without a valid reason, the seller may keep the deposit.

2. If the deal falls through due to valid conditions:

• For example, if a home inspection reveals major issues, the deposit is usually refunded.

Key point: Both the buyer and seller must agree to release the deposit. If there’s a disagreement, the matter could go to court.

Protecting Your Deposit: What Buyers Should Know

Deposits in Ontario are protected in specific ways to give buyers peace of mind:

1. Held in Trust: Deposits held by real estate brokerages are stored in trust accounts that are regularly audited.

2. Insurance Protection: If something happens to the brokerage (like fraud or bankruptcy), the deposit is insured up to $200,000.

3. Clear Agreements: Ensure the Agreement of Purchase and Sale clearly states all terms related to the deposit.

Tips for Buyers

1. Have Your Funds Ready: Sellers expect a fast deposit. Delay could jeopardize the deal.

2. Understand the Conditions: Work with your real estate agent to ensure the agreement outlines conditions like financing or inspections.

3. Be Prepared to Negotiate: A higher deposit can give you an edge in a competitive market.

Tips for Sellers

1. Verify Deposit Funds: Make sure the buyer’s deposit is secure and from a reputable source.

2. Work with Professionals: Lawyers and real estate agents can help ensure the deposit is handled correctly.

3. Know Your Rights: If a buyer backs out without valid reasons, you have a right to claim the deposit.

The Bottom Line

Understanding real estate deposits is a vital part of the home-buying process in Ontario. Being informed about the amount, timing, and handling of deposits can help you navigate transactions confidently and protect your interests.

If you're considering buying or selling a home in the Greater Toronto Area, The Johnson Team is here to assist you. With a strong reputation, unparalleled market knowledge, and creative marketing strategies, Jeff and Liz Johnson lead a team of experts dedicated to providing individualized service tailored to your needs. Whether you're a first-time buyer or an experienced seller, The Johnson Team will guide you through the real estate process, ensuring your expectations are met and surpassed.

Ready to buy or sell? Contact us today to start working with an agent right away!