The Truth About Deposits

There is a huge misconception when selling a home. A seller assumes that if the buyer

is unable to fulfill the purchase on closing day, then the deposit will be released to them

immediately to cover the financial burden.

The deposit can only be released to the seller if there is a signed mutual release by

both parties. If a mutual release is not signed, the brokerage holding the deposit can’t

release the funds until there is a court order to do so. With the current backlog in the

Ontario courts, this will easily take over a year if not longer. Even then, there is no

guarantee that the judge will award the seller the entire deposit.

So, why do we collect a deposit? Let me share the truth about deposits in my professional opinion.

It is supposed to show the financial security of the

buyer to the seller. But in my opinion, this practice is losing its reassurance. It’s not

uncommon to see a deposit request of $25,000 on a listing.

However, in today’s economy, most Ontarians do not have a substantial savings account. The majority are leveraging the equity in their current home to put down on a new purchase, and the banks have a lot of red tape for approving loans and lines of credit.

A more recent trend is borrowing the deposit from a parent, which defeats the financial security of a deposit.

One solution that I have heard over the years is to have both parties sign a mutual

release in advance. Should a buyer be unable to purchase the home on closing day, the

mutual release has already been signed and can’t be withheld by the buyer. I’m not

sure how that would hold up in court and would suggest reviewing with your lawyer and

including the broker of record for the real estate brokerage that your agent belongs to.

I do believe the practice is here to stay, but we could see some variations to it in the years to come.