A piece of the city · Transaction
Money in the middle belongs to neither party yet
The deposit is not the seller's until both sides agree it is.
You assume the deposit becomes the seller's the moment the deal is firm. It is held in the brokerage's trust account, and through a failed deal it can stay there, released when both sides agree in writing or when a court orders it.
The money stops being one party's
Between acceptance and completion, a deposit is held by neither the buyer nor the seller.
The brokerage receives it in trust, and money received in trust is not the brokerage's money either. It goes into a trust account, kept apart from the brokerage's own funds, under the rules the regulator sets for how such money is received, held and accounted for.
That is the point of the arrangement, and it is easy to forget once the offer is accepted and the deal feels done. Nothing has been transferred. Something is being held for a transaction that has not completed.
What actually moves it
On completion, it is credited against the purchase price, and that is the ordinary path. If the deal fails, the money stays where it is until the two sides agree in writing on where it should go, or until a court orders it.
Neither party can simply instruct the brokerage to pay it to them. The Real Estate Council of Ontario's stated practice is to release a deposit from a failed deal only on the written agreement of both sides or a court order, and a brokerage that paid one side on request would carry the risk for the whole amount. This is why a failed deal can produce months in which nothing happens: the money is safe and immovable at the same time.
The deposit protects the deal. It does not belong to whoever wants it.
The clause in your own agreement
Your agreement of purchase and sale says what is to happen if the transaction does not complete, and it is read far less often than the price and the closing date on the same page.
It matters most in exactly the case nobody plans for: a condition that was not satisfied, a closing that was missed, a buyer who changed their mind. In each of those, the deposit becomes a question about the agreement rather than about the money. Some agreements answer it in advance, with a clause directing where the deposit goes if a condition is not met; RECO accepts that only with both sides' informed agreement.
What to ask, about your own deposit
Four questions, asked in writing, before the deal gets interesting.
- Ask, in writing, where the deposit will be held and in whose name the account sits.
- Ask what releases it, and who has to sign.
- Find the release provision in your own agreement and read it against the answer.
- Ask what a brokerage does when the two sides disagree, and how long it can hold the money.
- Read the four together. The answers should match the document, and the document is what is enforced.
The type changes what can hold the deal open around the money. A condominium purchase carries a status certificate condition, so a deposit can sit while a corporation's records are being read. A semi or a detached house has no such document, and the interval is the inspection and the financing. A loft carries both the conversion's records and a lender's reading of them. In every one of those cases the deposit is in the same trust account, and in every one of them it moves by the same means.
The type changes what delays the closing. It does not change who is holding your money in the meantime.
Why we send this
The largest sum most people ever hand to a stranger for safekeeping moves on terms almost nobody has read, and the answer to what happens if the deal fails is written in the document both sides signed.
So we read the document. One thing about the mechanics of a transaction here, in enough detail that you can check it yourself and get the same answer. No figures we cannot source, no forecasts, nothing that expires in a fortnight.
How you can benefit from this: knowing what happens to the money if a deal does not finish, before it becomes a question for lawyers.
Kal Ayyoub · Realtor® · RARE Real Estate Brokerage · 416spaces.com
Not advice. Nothing here is legal or financial advice, and nothing here is a valuation. The trust rules are summarized and are not a substitute for the regulation or for a lawyer's advice. The diagram is schematic. No figure in this piece is a price.