How easily can I get back the deposit paid if my real estate transaction fails?

✧ When the real estate deal falls apart, the general principle is that the vendor is entitled to the deposit if the purchaser breaches the agreement, unless it’s stated otherwise in the Agreement. What will happen if the purchaser does not breach the agreement? Is it logical to assume that the deposit shall be returned to the purchaser?

✧ Normally, the deposit is kept in a Realtor’s trust account and released upon the deal’s completion to the vendor after deducting Realtor’s commission. In case the deal fails, it’s expected that the deposit is to be released to the vendor.

✧ In reality, when parties agree that the deposit is to be released, the brokerage will disburse the deposit to the vendor, but in case of a disagreement, that might turn out to be problematic. Real Estate Commission of Ontario has very strict regulations regarding such situations.

✧ Brokerages will release deposits upon receiving directions either:

⇝ signed by both parties; or

⇝ provided by the court.

✧ In other words, if parties are in disagreement by any reason, the only other way to get the deposit released is to initiate court proceedings. Litigation may take years.

Is it possible to prevent this outcome?

✧ There is no guarantee that the deposit is to be returned if the deal fails, but some steps to minimize the risk might be taken.

⇝ In a current situation of a buyer’s market, when it takes time to sell a house, it is well anticipated that deposits might be held in hostage by vendors in an attempt to force the deal to be completed. It might be practical to arrange a deposit to be paid in instalments if an offer is conditional. If the deal falls apart by the reason of not satisfying some conditions and the deposit is not released, the smaller amount of a deposit will allow a purchaser to continue searches and buy another property while settling the dispute.

⇝ It might be helpful to include in the agreement the clause stating that should the deal fails and the deposit is not released, it shall be kept on an interest-bearing trust account pending the resolution of the dispute. In this case, if the purchaser is entitled to the deposit to be returned, they will get some compensation for the time during which they didn’t have the access to the deposit.

✧ Do you want to be sure that you are protected in a real estate transaction? Book an appointment.