Can You Lose Your Home Deposit?

You’ve been scouring the Toronto real estate market for months. Your realtor has taken you to see a number of condos and townhouses that fit your budget. You’ve finally settled on the right place and worked out the terms of the deal. Now, it’s time to hand over the cash.

Making a deposit on a home purchase can be a scary process. After all, for many Canadians their home is the biggest purchase they will ever make. But Ara Mamourian, broker of record at Spring Realty in Toronto, says that making a deposit doesn’t need to be risky – as long as you’ve got the right conditions in place.

A deposit is a sort of “good faith gesture” as to your commitment to purchase a property, Mamourian says. The listing brokerage is required to deposit the money into a real estate trust account within five days of receiving it.

“Once that money is in the trust account, it cannot be moved,” Mamourian says. “If it’s moved it’s a crime punishable by up to 12 months in jail.”

What happens if the deal falls through?

An offer to purchase a property can either be firm, meaning there are no conditions attached to it, or conditional.

For example, the offer could be conditional on the results of a home inspection or the buyer’s ability to securing financing from a bank.

It’s important to make sure that the Agreement of Purchase and Sale has the right wording in place to protect the buyer in case the deal falls through, Mamourian says.

Typically, the agreement will say something along the lines of “This financing condition is in place for the protection of the buyer and can be waived at their sole discretion.’”

“You’ll get your deposit back 100 per cent of the time as long as you have conditions in your offer that allow you to back out of the deal,” Mamourian says.

What to do if it’s a firm deal

It becomes trickier if it’s a firm deal – or one that’s been firmed up after all of the conditions have been satisfied.

In that case, if the deal falls through, the buyer will have to ask the seller to grant a mutual release, Mamourian says.

But, “the seller doesn’t just automatically get that money awarded to them as compensation,” Mamourian says.

“In order for you to lose your deposit, the seller would have to sue you and convert that deposit into damages.”

The court may ask the seller to put the house back on the market. If it sells for a higher amount than the one the original buyer had offered, then the buyer is off the hook and can recover his or her deposit. If it sells for the less, the original buyer may have to pay the difference, as damages.

When things get litigious

There are also instances where the seller may refuse to refund the deposit. In that case, the buyer’s only recourse may be to sue them in small claims court, according to

But Mamourian says such instances are very rare.

“I’ve never seen anybody lose a deposit that they shouldn’t have lost,” Mamourian says.
“In fact, in my entire 10-year career I’ve never seen anybody lose a deposit, period.”­

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