UNDERSTANDING REAL ESTATE DEPOSITS IN ONTARIO

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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. It is a part of the final purchase price and is paid on successful agreement of the deal. It lends a sense of security to the seller as it establishes a stake that the buyer has in the agreement. 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 requirement for real estate deposits in Ontario by law, 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 considered as the standard deposit, the amount is usually negotiated between the seller and buyer. Moreover different regions may have different acceptable standards or customs in terms of what is considered as an acceptable deposit percentage.

Furthermore, regardless of the typical deposit on a home, the higher your deposit is, the more appealing your offer may be to the sellers.

A deposit that is too low may not help your cause in that it may be rejected and compel the seller to consider other buyers as they see the prospective deal as being risky or unworthy. On the other hand, you don’t want to unnecessarily pay too high a deposit. Lastly remember that if there are many buyers, the amount of deposit may tilt the game in your favor. In some cases you can even negotiate a lower selling price by paying a higher deposit.

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 in Ontario 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.

The standard timeline is within 24 hours of the acceptance of the Agreement of Purchase and Sale. However you can choose to request an alternate timeframe to pay the deposit, that is, by a certain hour on the given day. Again in case of a bidding war, where it can be important to secure the agreement, paying the deposit earlier, that is, at the time of making your offer can help – it helps establish good faith.

If you need to move the necessary funds for your real estate deposit in Ontario 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”

WHAT HAPPENS IF MY DEPOSIT IS LATE?

If the deposit does not arrive on time, you will be in breach of the agreement and the seller has the right to cancel the deal. Even if you are late by a few minutes, the seller can try and cancel the contract. This is especially common when the seller knows that there is another buyer out there who is willing to pay more money for the property. If you know you will need extra time to come up with your deposit, it’s important to say so in the offer.

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. Trust accounts are exceptionally regulated and routinely audited.

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.

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