Deposits & Earnest Money

The deposit — also called earnest money — is a sum of money you provide when your offer is accepted to demonstrate your commitment to the purchase. It is not an extra cost on top of the purchase price; it is an advance payment that is credited toward your total purchase price on closing day. But until closing, it is real money at risk, and understanding how it works is essential.

How Much Deposit Should You Offer?

There is no legal minimum deposit amount in Canada, but market conventions and strategic considerations guide what buyers typically offer.

Standard Guidelines

In most Canadian markets, a typical deposit is 5% of the purchase price. Here is what that looks like at various price points:

Purchase Price	5% Deposit
$400,000	$20,000
$500,000	$25,000
$600,000	$30,000
$750,000	$37,500
$900,000	$45,000

However, 5% is a guideline, not a rule. The appropriate deposit depends on your market and circumstances:

• In competitive markets — A larger deposit of 8% to 10% can strengthen your offer by signaling financial strength and serious commitment. If you are competing against multiple offers in Toronto or Vancouver, a $50,000 deposit on a $600,000 home (about 8%) stands out more than a $25,000 deposit (about 4%).
• In balanced or slower markets — A smaller deposit of 2% to 3% may be perfectly acceptable. Sellers in less competitive environments are typically less focused on deposit size.
• New construction (pre-construction condos) — Developers usually require deposits of 15% to 20% of the purchase price, often paid in installments over several months. For example, a $500,000 pre-construction condo might require $100,000 in deposits: $25,000 at signing, $25,000 at 30 days, $25,000 at 90 days, and $25,000 at occupancy.

Tip

Your deposit demonstrates financial seriousness, but it should not stretch you so thin that you cannot cover closing costs. Before deciding on a deposit amount, review your total cash needs: down payment, closing costs (typically 1.5% to 4% of the purchase price), moving expenses, and an emergency fund. Your deposit comes from your down payment savings — it is not an additional cost — but the timing matters because you need to have it available within 24 hours of acceptance.

When Is the Deposit Due?

The timing of your deposit delivery is specified in the Agreement of Purchase and Sale. In most cases:

• Resale properties — The deposit is typically due within 24 hours of the offer being accepted (mutual acceptance). Some agreements specify 24 hours, others specify “upon acceptance” or within a specific number of business days.
• The funds must be delivered as a certified cheque or bank draft — Personal cheques are not accepted. Wire transfers may be accepted in some cases. Your realtor will advise on the delivery method.
• The deposit is delivered to the listing brokerage’s trust account or, in some cases, directly to a lawyer’s trust account. It is held in trust and cannot be used by anyone until the deal closes or is terminated.

Practical Tips for Deposit Timing

• Have your deposit funds accessible. If your savings are in investments, a GIC, a TFSA with a withdrawal processing time, or a FHSA, make sure you can liquidate and access the funds quickly. Finding out on a Saturday night that your bank branch is closed and you cannot get a bank draft by Sunday afternoon is a stressful situation to avoid.
• Confirm your bank’s hours and services. Some bank branches can issue certified cheques or bank drafts on weekends; many cannot. Know your options in advance.
• Your realtor can advise on logistics. In competitive markets where offers happen on evenings and weekends, experienced agents have systems for managing deposit delivery.

Caution

Failing to deliver your deposit on time can put the entire deal at risk. The seller may have the right to terminate the agreement if the deposit is not received by the specified deadline. Do not let a logistical issue derail your home purchase — have the funds ready and accessible before you submit your offer.

What Happens to Your Deposit

Your deposit sits in a trust account from the time it is delivered until the transaction closes or is terminated. Here is what happens in each scenario:

If the Deal Closes Successfully

Your deposit is applied to the purchase price and credited to you on closing day. For example, if your purchase price is $500,000 and your deposit is $25,000, the remaining balance you need to pay on closing (from your mortgage proceeds and remaining down payment) is $475,000, plus closing costs.

Your deposit effectively becomes part of your down payment. If your total down payment is $100,000, and you already delivered $25,000 as a deposit, you bring the remaining $75,000 on closing day (along with your closing costs).

If You Exercise a Valid Condition

If you walk away from the deal during a valid condition period — because your financing was not approved, the home inspection revealed serious problems, or the status certificate raised red flags — your deposit is returned to you in full. This is one of the key protections that conditions provide.

The process for returning the deposit requires a mutual release form signed by both you and the seller (or their agents). In straightforward condition exercises, this is usually processed within a few days to a couple of weeks.

If You Default on a Firm Deal

If you back out after all conditions have been waived (or if you submitted a firm offer with no conditions), the seller is entitled to keep your deposit. Additionally, the seller may sue you for additional damages beyond the deposit amount.

This is the worst-case scenario for a buyer, and the financial consequences can be severe.

Circumstances Where You Can Lose Your Deposit

Understanding when your deposit is at risk helps you make better decisions throughout the offer process:

1. Failing to Close on a Firm Deal

Once your offer is firm (all conditions waived or fulfilled), you are legally obligated to close. If you cannot close — whether because you changed your mind, your financing was declined after you waived the financing condition, or you simply failed to arrange your affairs — you will lose your deposit and face potential legal action.

2. Missing a Condition Deadline

Condition deadlines are legally binding. If you fail to waive or fulfill a condition by the specified deadline, the consequences depend on how the condition is drafted:

• In most standard forms, a missed deadline terminates the deal and your deposit is returned.
• However, some conditions are drafted so that failing to act by the deadline means the condition is deemed waived — making the deal firm. If you then cannot close, you lose your deposit.

Always track your condition deadlines meticulously. Set calendar reminders and confirm them with your realtor.

3. Waiving Conditions and Then Trying to Back Out

Once you waive your conditions, the deal is firm. Buyer’s remorse is not a legal basis for terminating a firm agreement. If you waive conditions and then try to back out, you will lose your deposit and may be sued.

4. Financing Declined After Waiving the Financing Condition

This is one of the most common ways buyers lose their deposits. A pre-approval is not a mortgage commitment. If you waive the financing condition and then your lender declines the mortgage — because the appraisal came in low, because your employment changed, or because the lender identified an issue with the property — you are stuck. You are legally required to close, but you do not have the mortgage you need to do so.

Caution

Your deposit is real money at risk. Once your offer is firm — whether because you submitted without conditions or because you waived all your conditions — that deposit is effectively committed. Understand that backing out of a firm deal means you will likely lose your entire deposit and potentially face a lawsuit for the seller’s additional losses. The seller’s damages can include the difference between your purchase price and what the home eventually sells for, plus months of carrying costs (mortgage payments, property taxes, utilities, and maintenance) while they wait to resell.

How Your Deposit Applies at Closing

On closing day, all the financial pieces come together through your lawyer. Here is a simplified breakdown:

Example: $600,000 purchase price

Item	Amount
Purchase price	$600,000
Minus: deposit already paid	-$30,000
Minus: mortgage proceeds	-$480,000
Remaining cash needed from buyer	$90,000
Plus: closing costs (land transfer tax, legal fees, etc.)	+$15,000
Total funds required on closing day	$105,000

Your lawyer will provide you with a detailed closing statement showing exactly how much you need to bring on closing day. The deposit is always credited — you never “lose” it in a successful transaction.

Deposit Disputes

In rare cases, disputes arise over the return of a deposit. For example:

• The buyer exercises a condition, but the seller argues the condition was not validly exercised.
• The buyer and seller disagree about whether a deadline was met.
• The deal falls apart and both parties claim entitlement to the deposit.

When disputes occur, the brokerage or lawyer holding the deposit in trust cannot release it to either party without both parties’ written consent or a court order. This means the money can be held in trust for months or even years while the dispute is resolved.

To avoid deposit disputes:

• Always communicate condition exercises in writing through your agent
• Keep copies of all correspondence and documents
• Meet every deadline specified in the agreement
• Consult your lawyer immediately if any ambiguity arises about the terms of the agreement

Tip

Think of your deposit as a down payment on your commitment. It should be large enough to demonstrate seriousness but not so large that it creates unnecessary risk. In a standard conditional deal, your deposit is well-protected by your conditions. The risk only becomes significant when you submit a firm offer or waive your conditions. Make sure you fully understand your exposure before you take that step.

Your deposit is the financial bridge between making an offer and closing the deal. Handle it wisely, protect it with appropriate conditions, and make sure you are fully prepared — financially and legally — before putting it at risk.

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Next: Common Offer Mistakes