Buying your first home involves a lot of learning. With so many moving parts involved along the way, one essential component to be cognizant of when you seriously start searching for homes is how much you may need for a deposit. To ensure your home buying journey is as smooth as peanut butter, we’re answering all of your burning questions about real estate deposits in Ontario.

WHAT IS A DEPOSIT IN REAL ESTATE?

When buying a home or condo in Toronto, the buyer gives a deposit along with their offer to the seller of the property. Real estate deposits are paid by certified cheque or money order and serves to a) assure the seller the buyer is serious, and b) protects the seller should the deal fall through.

HOW MUCH IS A DEPOSIT ON A NEW HOME?

While there is no set deposit requirement in Ontario, the standard deposit for a home purchase is 5% of your offer price. For instance, if you are making an offer on a home for $750,000, the expected deposit amount would be $37,500. This amount goes towards your down payment should your offer be accepted.

It’s worth noting that while 5% is the typical deposit on a home, the higher your deposit is, the more appealing your offer may be to the sellers.

The deposit to buy a Toronto pre-construction condo is different. Learn more

WHEN IS A DEPOSIT DUE ON A PROPERTY IN TORONTO?

If your offer is accepted by the seller, generally your real estate deposit is due within 24 hours unless otherwise stated. This is why, when you seriously start searching for properties, it’s important to have your deposit funds readily available.

If you need to move the necessary funds for your deposit from one account to another, this may take a few days and you don’t want to risk losing that dream home because you weren’t able to arrange your finances in time.

“When you seriously start searching … it’s important to have your deposit funds readily available”

WHERE DOES THE DEPOSIT GO?

A real estate deposits funds will likely be held by the statutory real estate trust account of the listing brokerage, aka the seller’s brokerage. 

IS YOUR REAL ESTATE DEPOSIT PROTECTED?

When you work with a real estate agent or broker, the deposit you pay is protected through their insurance program at no cost to you. Brokers and agents are required by law to provide this insurance. You can learn more about this insurance on RECO’s Protecting Your Deposit page.

Related: How Does a Bidding War Work in Real Estate?

WHAT HAPPENS TO THE DEPOSIT IF A BUYER CAN’T CLOSE ON THE DEAL?

In the event that an offer falls through, what happens to the deposit on the home? First we need to look at two types of offers buyers can make that will determine the outcome.

The first scenario is a conditional offer. Let’s say the buyer makes an offer that is conditional on financing and the offer is accepted. If the buyer is unable to obtain financing to move forward with the deal, because the Agreement of Purchase and Sale would have outlined this condition, the buyer’s deposit would be returned in full.

However, if the buyer is unable to obtain financing after their offer is accepted and the offer was firm (i.e. had no conditions) then you will likely lose your deposit. Be absolutely sure you are able to fulfill a firm offer when buying a home in Ontario.

Related: Step-by-Step Guide to Saving for a Down Payment

YOUR OFFER IS ACCEPTED, NOW WHAT?

If all goes well and your offer is accepted, that deposit goes towards your down payment. You’ll need to have all of your closing expenses ready to go on the agreed upon closing date. On resale properties in Toronto, your closing costs include Land Transfer Tax (both municipal and provincial) and your legal fees.

If you’re a first-time home buyer, you may be eligible for a few first time buyer rebates. Learn about First Time Buyer Rebates and how much you could earn back here.